Self-Directed IRA Questions

3 Replies

My Dad is trying to buy raw land in Michigan by rolling over his traditional IRA to a Self Directed IRA. This is a long-term investment. I understand we cannot use this for personal use. I have a few questions that maybe the BP community can help with:

1) We want to build a pole barn on the property.  Not for personal use.  Simply to increase the resale value of the vacant land. Can we do this? 

2) If we wanted to divide it up and sell the property in smaller parcels could we do that?

And one last side question unrelated to my situation...

Can I buy real estate that has a dwelling with the intentions of flipping the property to get a positive return using the money in the Self Directed IRA?

I understand this is a complicated transaction and I am in the process of talking with an accountant...any insight would be helpful.  Thank you!

@John Lyszczyk

The land deal could work. The IRA is purchasing the property and all expenses for acquisition, maintenance, etc are paid from the IRA. When the property is sold, the capital is returned to the IRA tax-sheltered. If the IRA were to have someone (not you or your father) build a structure and that structure could be rented (storage, perhaps), the renal income would also accrue to the IRA.

Development/subdivision and flipping can cross a line and become viewed as a trade or business depending on certain details. Such business activities are taxable to an IRA if conducted on a regular or repeated basis.

@Brian Eastman Would we be able to sell of a smaller parcel? Say we have 80 acres and we want to sell 5. Can we do that? 

@John Lyszczyk

Yes, if the IRA owned a larger plot and wanted to subdivide and sell a parcel, that would be fine. Taking the whole 80 acres and turning it into 40 five-acre parcels and putting in streets and utilities and then selling the lots would be a business that would have tax consequences.

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