joE4
Lv 5

Using rental-house in Self-directed IRA?

LLC (of Self-directed IRA) has 3 houses. What are the tax-implications when self-directed-IRA owner wants to occupy one of the houses for personal use?

Update:

The self-direct IRA owner is 66 years old; does this matter?

Update 2:

I will do further research (and talk to a tax-attorney) but here is an interesting cut-and-paste:

Benefits of IRA LLC vehicles

If you have a self-directed IRA LLC vehicle, you have an added advantage. With this structure, you can act as your own property manager—a role disallowed with traditional self-directed IRAs. You’ll be able to buy rental properties as an IRA investment and be your own property manager (landscaper, handyman, roof repairer)—potentially saving hundreds to thousands in fees you might have to pay others to manage the property.

Taking the property out of the account

Do be aware that you will need to pay IRA distribution taxes based on the fair market value of the property at the time you take it out of the account (determined by a then-current written appraisal) and according to whatever tax bracket you are in at that time. If, by that time, you happen to be in a lower tax bracket, the savings could be substantial.

And if you invested in the real estate using a

3 Answers

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  • 10 years ago
    Favorite Answer

    It's absolutely illegal. Although you can hold real estate in an IRA, it is STRICTLY hands off. You cannot live in it, rent it to a related individual, or even be involved in the management of the property in even the most peripheral manner.

    If you wish to occupy the property it must be sold to a 3rd party intermediary, the funds disbursed from the IRA and taxes paid on them, and then be purchased from the intermediary. Only then can you occupy the property or manage it as a rental in the normal fashion.

  • Bostonian is correct. The only impact of the IRA owner's age is that the penalty tax won't be imposed when he withdraws the proceeds of the sale from the IRA.

  • tro
    Lv 7
    10 years ago

    are you going to pay rent to the LLC? if not, this is probably not legal

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