Hi. I have a few rentals, and one of them needs a bigger refresh than I can afford right now. So, I'm considering selling it, and have an interested party. But I'm also going to convert an IRA into an SD IRA in 2020 to expand my real estate holdings. I'm reading up on SD IRAs right now.
I'm curious... can I legally sell my personally held property to my own SD IRA?  Is there an appraisal route that will keep it 100% fair and legal?  The reason I'm interested in this is that I also plan to retire in 2020, and even with tax implications the cash from the sale would be useful to me during my first year outside the corporate world.
thanks!

Nope- this would be a disallowed transaction. Not an arms length transaction. 

Keep in mind too rentals in a SDIRA can't have normal loans, needs to be non recourse

Awesome, thank you for the input. I will take that option off of my list. :) I don't plan to use any loans in my SD IRA, even non recourse sounds complicated and a little risky to me.

@Quentin Bomgardner

I think it is better to have rentals in a Roth than a traditional. 

Why do you think a Roth is better than a traditional for holding rentals? 

What you could do is sell your existing property that you are not wanting to repair, and buy a DIFFERENT lower maintenance one with your SDRIA or SOLO401K (if you qualify).

Doing the loans in your SDIRA or SOLO401K is not really that complicated. NASB is one of the top lenders and makes it pretty straight forward. You would need 40%+ down instead of the standard 20%. The good thing about non-recourse is that the property they are on are the ONLY thing the lender can come after if you were to default. We own about 10 of our 30 units in Self Directed Accounts, and are working on adding 8 more through a Seller Financed Non-Recourse Loan.

@Quentin Bomgardner

Non-recourse loans are not risky, they are actually less risky than normal because usually they are at 50% LTV. You can buy two rentals at 50% LTV and let the tenants pay off the loans. It's a great way to build wealth especially if you live in an area that is appreciating.

@Daniel Dietz

Why hold rental property in an IRA at at all?

Cash flowing rentals are as close to a tax free investment as you’ll ever find

I understand using IRA money to invest in lending because it is taxed at ordinary income rates.

I also understand wholesaling using an IRA

But not holding rentals

You also give up most of the advantages of leverage if you hold rentals in an IRA

@Jimmy Vreeland

You don’t pay any capital gains tax either.

Why hold rental property in an IRA at at all?

1)
That is where 90%+ of my funds were ALREADY when I started investing in
Real Estate. It came down to do I want to make maybe 8-10% in a
radically fluctuating stock market, or 12-18% in steady predictable real
estate?

Cash flowing rentals are as close to a tax free investment as you’ll ever find

2)
Owning them in cash is a pretty good deal tax wise for at least the
first 10 years or so, and I do a lot of that now too. But you also need
to remember that a big part of that 'yearly tax free income' will have
to be repaid in deprecation recapture tax when you sell.

I understand using IRA money to invest in lending because it is taxed at ordinary income rates.

3)
To me, at this point in my life, I feel I can make better returns
owning rentals that lending in my Retirement Accounts. I also am not
familiar with being the lender, and they say stick with what you know
;-) I AM studying up on lending/notes for a decade of so down the road
when I might not want to be doing rentals any more.

I also understand wholesaling using an IRA

4)
You want to be careful here.... there is some thought that by you
wholesaling in your IRA you are 'performing a service for the benefit of
your account'.... sounds like a prohibited transaction to me.

You also give up most of the advantages of leverage if you hold rentals in an IRA

5)
You can still get the advantages of leverage, just not as much is some
cases. I can find lenders all day long who will lend at 60% LTV. I have a
Private Loan @ 5% and 70% LTV. I am almost closed on a Seller Financed
Non-Recourse deal of 8 units that will be @ 5% interest and 80% LTV for
30 years with a 15 year balloon. Better than I can get in my cash based
LLC right now.

It mostly comes down to that is where my assets were/are, and how can
I make the most use of them at the least amount of risk compared to
repair.

Dan Dietz

 

@Carl Fischer , why do you think it is better to hold a property in a Roth vs a traditional ira?

I look forward to your response.

Thx,

Alan

Great discussion, thanks for all the comments!

I appreciate the comments about non-recourse, and will look into them more.
The reason I'll be using a traditional IRA rather than a Roth is because I'm rolling a pension into an SD IRA, to make it a Roth would require paying taxes on it now - which I don't want to do.

Great discussion, thanks for the comments!
I appreciate the info about non-recourse, and will look into that more.
The reason I'll be using a traditional IRA rather than Roth is because I'm rolling a pension into and SD IRA. To make it a Roth now would simply require way too much in tax payment.
I've been a rental property owner for 15 years, but not within an IRA.  So luckily I have experience where I think I need it, but just need to learn the ins and outs of SD ownership and rules.
Thanks!

Regarding non-recourse loans, are the related tax issues on these when held in a SD IRA complicated?

@Quentin Bomgardner , my SDIra owns a property.  I looked at some of the non-recourse products to increase my ira holdings.

Imho they are purely appreciation plays.  Costs are high, interest is high, and terms kinda suck.  It might work for others, but I don’t see it working for me.  UBiT looks like a royal pain.  My cpa of 35 years has never filed a UBiT return, which is another layer of complexity.

My goal of having a rental property in my ira is to have income/buying power that tracks inflation.  My ira property is in a great school district, great tenants, and pretty much runs itself.

Hope that helps!

@Quentin Bomgardner

Yes, you have to pay taxes on the % of rental income that is financed but it isn’t a big deal for most CPA’s.

https://www.accuplan.net/blog/what-are-ubit-and-udfi-taxes-associated-with-self-directed-iras/

@Quentin Bomgardner

Traditional to Roth : forever taxed to never taxed. Pay the tax on the seeds and not the crops. Lots of strategies to make the transition. Get with the smart/experienced/knowledgeable  SDIRA guys. It’s worth it. 

Originally posted by @Jimmy Vreeland :

@Daniel Dietz

Why hold rental property in an IRA at at all?

Cash flowing rentals are as close to a tax free investment as you’ll ever find

I understand using IRA money to invest in lending because it is taxed at ordinary income rates.

I also understand wholesaling using an IRA

But not holding rentals

You also give up most of the advantages of leverage if you hold rentals in an IRA

Wholesaling in an IRA would be operating an active business in an IRA which isn't allowed.

You'd get taxed on proceeds for UBIT