self directed ira property swap

3 Replies

I own a property in my self directed ira. Could I swap properties with a non-disqualified person? 

@Jordan Wilson

Quite possibly, yes.

So long as the transaction does not create any direct or indirect connection with a disqualified party, exchanging a property for another property instead of cash would not produce any IRS compliance issues for the IRA - in and of itself.

You also need to ensure that as a fiduciary to the IRA, you are acting in the best interests of the IRA. A swap could very well meet that criteria, but with no other details about your deal, I thought it relevant to bring that point up.

You're right @Brian Eastman ! I should have included more details because I'm having a hard time wrapping my brain around this. Another investor gave me the idea & told me I should look into how it could work. Here's some more info:

There is a distressed seller going into foreclosure on a reverse mortgage that I would swap properties with. The seller would have a life estate at my existing property that would come back to the IRA upon death. I don't have enough cash in the IRA to buy the property outright, but I could cover the back due amount to reinstate the loan. I guess that would require a sub-2 or wrap & I would need to be prepared to refinance? That could be messy...

In this arrangement, I would be picking up equity in the swap & I would recoup the other property at a time TBD. The seller would benefit from not losing their property to foreclosure & have their next placed lined up. 

I would prefer to buy the distressed property separate from the IRA, but it was an interesting idea, so I thought I would entertain the possibilities...

@Jordan Wilson

That sounds fine from a compliance viewpoint. The only concern is any debt instrument that may end up being used. It would have to be non-recourse and would expose the IRA to UDFI taxation on leveraged income (which is not generally sifnigicant). The bigger concern is being sure you could pull off non-recourse financing on the property if required to do so.

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