Self Directed IRA owning LLC

2 Replies

We are closing on a South Alabama MHP purchase this month, and forming a separate LLC just to own/repair/rent/sell the mobile homes. I am wondering what issues I might have with my SDIRA owning 50% of the LLC. We are using $170K capital from the IRA to buy and rehab homes. I know I cannot be the managing partner and that I cannot personally guarantee any loans to the LLC. I am not worried about UBIT as depreciation will help offset. I (my SDIRA) am taking a 6% preferred return and return of capital before sharing 50% profits.

@Glen Zuffelato

Here is the issue: such a transaction might be considered prohibited by the IRS and will disqualify the IRA.

You are considered to be a "disqualified person" to your IRA and IRS rules dictate that all transactions involving your IRA must be "arms length". You can have your SD IRA LLC invest in real estate but you want to make sure that you personally are not involved, you can't do any labor personally, just manage the investment. The other issue is that if you are going to buy, rehab and resell in your IRA - that is likely going to be considered an active business and all gains and profits will be subject to UBIT tax. IRA is designed to be invested passively, in this case income/gains will be sheltered from taxes. 

As mentioned above. If you do any work in this "business" your entire IRA becomes taxable that year like you took all the money out. You pay someone to do the advertising, the cleaning, all the repairs, MAYBE even the searching for and screening of tenants and properties. You can't provide any services or benefit in anyway. Be VERY careful or take the money out first and pay the taxes. Then you'll be able to take depreciation as an expense against the income and make your life much simpler than getting caught later.