Seller financing property that I own in my IRA

3 Replies

I own 8 properties in a self directed IRA. I am interested in selling one or more, but I want to carry the paper for a continued income stream.

My questions are as follows:

How would the transaction be handled from a paper work prospective? On one particular property I have $90k invested and it would sell for $240k.

Would the IRS consider this a distribution of the net sales prices say $225k , even though I may only get $10k down?  or

Would this be considered an installment sale like I have done outside my IRA?

My custodian in Equity Trust.

If you have done something similar please let me know. Thanks!

@John R ables ,

The IRA is selling the property. The IRA is receiving a small gain in the form of the down payment. That gain would go to the IRA and would generally remain tax-sheltered. It would only be taxable to you if you then chose to have ETC issue a distribution from the IRA to you. Otherwise, the IRA is trading the real property asset for a note asset and there are no tax implications.

If you are holding 8 properties in an ETC account, you need to seriously consider a checkbook plan such as an IRA LLC or a Solo 401(k). It will save you tremendously on paperwork and fees.

I’m interested in purchasing with the owner finance option.

@John R ables , the info @Brian Eastman gave above is accurate.

I would recommend simplifying the process like this:
1. Form an IRA-owned LLC. You'll have to contact a third-party to do this.
2. Transfer the properties from your IRA to the IRA-owned LLC.
3. Profit!

How? You'll save on all the custodian fees, but the trade-off is that you would be managing everything yourself, or with the help of a handy dandy attorney.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.