Refinance using self directed IRA

6 Replies

I purchased a rental property several years ago using my home equity line of credit from my primary residence. Can I now refinance my rental property using my self directed IRA to pay off my line of credit and transfer ownership to the SDIRA LLC?

@Gonzalo Perez

Such transaction would result in a prohibited transaction.

Certain transactions between an IRA and its owner or an IRA and a "disqualified person" are specifically prohibited by law.

A prohibited transaction is a transaction between an IRA and a disqualified person that is prohibited by law.

The transaction that you are describing would run afoul with some or all of the following prohibited transaction rules:

Prohibited transactions generally include the following transactions:

  • a transfer of plan income or assets to, or use of them by or for the benefit of, a disqualified person;
  • any act of a fiduciary by which plan income or assets are used for his or her own interest;
  • the receipt of consideration by a fiduciary for his or her own account from any party dealing with the plan in a transaction that involves plan income or assets;
  • the sale, exchange, or lease of property between a plan and a disqualified person;
  • lending money or extending credit between a plan and a disqualified person; and
  • furnishing goods, services, or facilities between a plan and a disqualified person.

Thank you for your replies. I will refinance my property in the conventional manner and I will review all IRS rules in order to use my SDIRA for other real estate investments under appropriate guidelines. I am still in process of shopping for a custodian under reasonably affordable terms. Any advice will be appreciated.
Gonzalo

Originally posted by @Gonzalo Perez :

Thank you for your replies. I will refinance my property in the conventional manner and I will review all IRS rules in order to use my SDIRA for other real estate investments under appropriate guidelines. I am still in process of shopping for a custodian under reasonably affordable terms. Any advice will be appreciated.
Gonzalo

https://www.biggerpockets.com/rei/self-directed-ira-real-estate/

Hello Gonzalo! The main concern here is that you will seen as though you are possibly profiting. The only way you could possibly do that is for an even trade where it makes no money. At least it could have potential deferred tax liability on any future profit. I have been studying this for a couple years and the "best" I have found is Entrust or Udirect. It appears that most of them have figured out to make money just below regular IRA's. One of the most important they should have is are "How long have they been in business and/or their experience". Good luck to you!

@Gonzalo Perez

As a few people mentioned the transaction you outlined would be prohibited.  However for your future transactions, if you keep in mind that the property is strictly for investment purposes, that should help you avoid prohibited transactions. 

Meaning:

Can you physically work on the property - No

Can you pick paint colors and finishes - Yes (you must pay a non-disqualified person to physically do the work)

Can you stay over night at the property - No (any disqualified persons can not stay at the property) 

Can you rent the property to a non-disqualified person - Yes (all proceeds go back into the IRA including rental income)

Those are just some of the basics, if you have any additional questions I would be happy to connect and answer all of your questions.