Buying commercial truck using self-directed IRA

9 Replies

I have an opportunity to buy a commercial truck using my retirement account and then lease it out to an operator. I already have several people lined up who wish to lease it from me. I have general understanding of prohibited transaction rules and that I can not receive any personal benefits from investments of my IRA. I know that I can buy a rental property inside my 401k and rent it out. I want to get an opinion on my potential investment of a commercial vehicle. Do you see any issues with this, are there anything I need to be aware of, any potential pitfalls that I need to lookout for?

@Grace Huang

An IRA may own personal property such as a vehicle. As with any IRA investment, the key is keeping all transactions at arm's length.

The income from leasing personal property will likely be subject to UBTI taxation.  Check with a tax professional.

You will of course need to obtain insurance on the vehicle and any necessary licensing through the IRA.

I have helped more than one person do this in the past. Brian is accurate in his thoughts on UBTI. Best of luck!

@Grace Huang You can get around the UBIT issue with a solo 401k. If you own your own business with no full time employees other than yourself and your spouse, you may qualify to set one up.

For a list of disallowed IRA investments, see following link:

http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-IRAs-Investments

Originally posted by @Adam Hershman :

@Grace Huang You can get around the UBIT issue with a solo 401k. If you own your own business with no full time employees other than yourself and your spouse, you may qualify to set one up.

Adam, income generated in a Solo 401k from the unrelated business activity would still be subject to UBIT.

UBIT still applies to a solo 401k unless it is a real estate non-recourse loan and the funds are not used for flipping real estate. 

Originally posted by @Dmitriy Fomichenko :
Originally posted by @Adam Hershman:

@Grace Huang You can get around the UBIT issue with a solo 401k. If you own your own business with no full time employees other than yourself and your spouse, you may qualify to set one up.

Adam, income generated in a Solo 401k from the unrelated business activity would still be subject to UBIT.

 True story, was thinking UDFI!

Originally posted by @Dmitriy Fomichenko :

@Adam Hershman

UDFI is not applicable in Grace's situation. 

 Correct, I was mistakenly thinking of UDFI (not applicable to 401ks) when I made the incorrect comment about 401ks not being subject to UBIT (applicable to 401ks). 

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