SDIRA LLC and Flipping Lease Options?

Question

If I use a self-directed IRA LLC with checkbook control to fund the lease option consideration, can I then deposit the profit from flipping the lease option into the SDIRA tax free?

Jon Holdman · Answer

No, its not entirely tax free.  Yes, you can (and must) deposit the proceeds back into the IRA's checking account.  However, because flipping lease options is an active business, your IRA is now subject to UBIT (unrelated business income tax.)

Account Closed · Answer

Jon, from what I've read the definition of "active business" is kinda gray...does it depend on how many and  how often you are flipping those lease options?  and do you know of anyone where the IRS has actually assessed the UBIT on someone flipping options?  thanks

Account Closed · Answer

thanks Mike.  you have a SDIRA with them?

Steven Hamilton II · Answer

Flipping options requires attention on your part to produce the income, that means, subject to UBIT.  One, maybe, two could be ok; however if it does or you plan to continue yes definitely subject to UBIT.

-Steven

Jon Holdman · Answer

The IRS doesn't assess UBIT.  Its up to the tax payer (the IRA, in this case), to file their tax return and pay taxes.  If the IRS at some point figures out some entity is generating taxable income, perhaps from the documents title companies have to file, and decides you should have been filing returns and paying taxes, then you will be subject to taxes and penalties.

You are correct that "active" isn't 100% cut and dried.  Intent does play a role.  Rental income, for example, is specifically excluded from UBIT.  Income from making a loan is also not subject to UBIT.  OTOH, doing fix and flips would be an active business and that income would be subject to UBIT.  But if you made a loan, the borrower defaulted, and took back a house, then sold it at a profit, your intent may come into play.

I don't think how often you're doing these comes into play.

Pretty sure flipping options would be an active business.  But I'm not a lawyer, though I have spent a fair amount of time discussion these questions with a lawyer.  This specific question never came up.

Mike Hurney · Answer

IMHO
Yes, if it's a Roth.
Otherwise it's Tax Deferred, but check with Carl Fisher  CamaPlan

SDIRA LLC and Flipping Lease Options?

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