All Forum Posts by: Brett Synicky

@Art Webb yes there is.  Unless the loan paid off free and clear for at least 12 months. 

Quote from @Art Webb:

If I buy multi family comm real estate via a RE LLC company with my Roth IRA does the rent income become UBIT taxable ? If the property is paid in cash and later a mortgage is secured does it impact the UBIT question above ? Thank you for your feedback !

It's true that the IRA will incur UDFI/UBIT on the income derived from the same % leveraged. What's also true is that you can deduct expenses and even depreciation on this same % and subtract the first $1000 before calculating the UBIT. It's true it does scale up to 37% but not until around $12k of income after those deductions. Generally in the first year or more you'll have enough of those to not really incur any UBIT on especially when you factor in cost seg. Don't let UDFI on leveraged real estate scare you away from investing in your IRA, it can still make you a lot of retirement money.

Even better, get some self employment activity and sponsor a solo 401k then no UBIT on leveraged real estate!   

Quote from @Eden Meng:

Hi Wonderful BP Community,

I am in the process of acquiring an out of state property for mid term rental. The proceeds used to acquire the property will be from my solo 401K. I have my team on the ground when it comes to real estate agent, cleaner or other critical team members to make the property up and running. I have reviewed the IRC publication for prohibit transactions between the plan and a disqualified person which contain a few criteria including selling, exchanging and leasing the property. I dived deeper on the " leasing property part" and the only clarification is not to lease the property to disqualified persons. I would like to clarify if there is a possibility that I could be the leasing agent for the property?

Your input is greatly appreciated !

Eden

It’s probably best to pay a third party to do this, especially not living near the property.  That said, an easy way to think about what a disqualified party can do/not do is this:  You can do white collar work, not blue collar work.  I’ve heard attorneys who specialize in self directed retirement accounts say you can put the lease agreement together and even show the property to prospective tenants and
of course you could manage it.  You can’t swing a hammer you have to hire somebody to swing the hammer.  Again best to hire all this out for various reasons not the least of which is if somebody needs to be evicted. 

Quote from @Mohit Gupta:

Following. Just starting to research how to invest w/ SDIRAs. 

I'm confused why would you say that rental income is taxed in an IRA? May be you meant that the IRA has deferred-tax funds and not Roth?

How about using SDIRAs not to hold assets but to operate businesses? For example, could I use my SDIRA to operate a management company that charges my holding LLCs a management fee? Now the paper losses are still able to be realized via the holding companies while the management fees are earned tax free? I'm guessing though that since the IRA owner isn't allowed to take out a salary, perhaps the SDIRA LLC will be required to hire employees?

 This would be a prohibited transaction since you're a disqualified party and anything you already own (your LLCs) is part of that. Additionally if you're running an active business in the IRA the income will have to pay UBIT. There are some creative ways to get it from 37% to corporate tax rate of 21% but generally it's best to invest passively as the IRA is designed.

Quote from @Ryan Daulton:

Since learning that cash flow from real estate that was purchased from self-directed IRAs is taxed, and that I would not be able to claim depreciation on this property, what are the advantages to buying real estate with self-directed IRAs vs. other investment types like stocks and mutual funds?  

It seems like there are so many limitations to buying real estate with self-directed IRAs.  For those that do invest in real estate using this, what are your reasons?  Are there any benefits I may not be aware of here?

You would only pay taxes on all passive investments in a traditional SDIRA at distribution, unless you have a mortgage, then the portion of the income derived because of the mortgage will be subject to UDFI (unrelated debt finance income) which will trigger UBIT (unrelated business income tax). This tax scales up to 37% but not till around $12,500k in income for the year. Before the income subject to UBIT is calculated you can depreciate and deduct expenses and losses on that portion of the income so generally it's not as bad as people think. So it's not correct to say you cannot depreciate real estate in an IRA.

Bear in mind, you're not investing in a retirement account to take advantage of tax deductions, as there are no taxes. I suggest buying real estate inside of and outside of your IRA or better yet qualify for a Solo 401k then you don't have to worry about UBIT on leveraged real estate.  Additionally, keep in mind if you do this in a Roth then there are NO taxes on the appreciation, rental income or profits when the Roth liquidates the asset.  Also the loan for a retirement account must be non-recourse.  Something else to think about, when's the last time somebody gave you a loan to buy more S&P 500?   Like @Chris Seveney said, private lending is a great way to go as well.  

Quote from @Andy Gibson:

Does anybody have experience using a 401k loan to fund a property? Pros/cons? 

Do you mean a loan from your own 401k for you to personally buy real estate or using your 401k to loan to a third party to buy real estate?

Quote from @Sri Voodi:

Quote from @Diyan Yap:

Yes, you can do SDIRA buy a distressed property and rehab the property.
BUT be aware of "Prohibited transactions" and  "disqualified person".
Where did you set up your SDIRA ?
Do they give you documents what you can DO and DON'T .
 

 Diyan, 

I haven't even set up SDIRA yet. I was contemplating if such a scenario is allowed or not. I was aware that you can buy a property but wasn't sure if SDIRA allowed rehabbing. Thanks for replying.

Thanks,

Voodi

 You’ll want to take a look at setting up a Checkbook IRA.  The custodian is bypassed and you can make payments and deposits into a checking account owned by the retirement account.  No delays, no red tape, no custodian transaction fees each time you perform a transaction.  Plus you can sign on behalf of the retirement account instead of the custodian.   It’s by far the best way to set up an SDIRA, especially when it’s investing in real estate on account of the amount of transactions done regularly.  

as far as I know, yes. Is it already a self directed IRA? Call
Avram Shabanyan   Tell him I sent you

SVP – Retirement Lender

Office: 303-209-8600 Ext: 6429

NMLS: 1301415

@Robin Cornacchio  Theoretically you could but your ira doesn’t have any credit so nobody will likely extend credit to it. 

Probably better off getting a non-recourse loan.  Call through this list and find out what the lenders will do.  Lenders

@Schaan Donaldson this would be a prohibited transaction and could cause the entire IRS to become a distribution triggering penalties and taxes.  You and your immediate family are disqualified parties. Make sure you work with a company that will support you on what you can and cannot do with your retirement funds.