IRA LLC Owned Real Estate In-Kind Distribution Rules

Just like the IRA LLC rules allow for the distribution of cash, the same is true for the distribution of alternative investments owned by the IRA LLC. Alternative investments allowed in an IRA LLC include promissory notes, metals, tax liens, cryptocurrency, private placements and physical real estate, for example.

For this post, we will address the in-kind distribution rules applicable to physical real estate (e.g., family homes, apartments, condos, commercial real estate and land) owned inside an IRA LLC, whether a Roth IRA LLC or a Traditional IRA LLC. 

Items to Consider When Taking In-Kind IRA LLC Distribution of Physical Real Estate

  • The IRA LLC owned property first has to be assigned back to the self-directed IRA from the IRA LLC. Reason being, you are taking a distribution from the IRA not the LLC. Taking the distribution from the LLC would result in a prohibited transaction rendering the entire IRA subject to taxes.
  • Before processing the the in-kind distribution of real estate, the property must be appraised by a third-party to ensure the correct amount of federal and state taxes are paid.
  • Distributions including in-kind distributions of real estate from an IRA are taxed at earned income tax rates. Note: if the property is distributed from a Roth IRA, taxes may not apply if it falls under a qualified Roth IRA distribution.
  • A 10% IRA early distribution penalty also applies if you are under age 59 1/2 at time of the distribution.
  • Once inside the self-directed IRA, the real estate property will need be assigned from the IRA to your personal name, so you will also need to have the property re-recorded with the county recorder.

The End Result

Once distributed from the self-directed IRA, the property is now owned in your personal name. Therefore, you can now use it for personal, business or for investment purposes.  All future income and expenses will not be paid with non IRA LLC funds.

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About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

One Comment

  1. Posted June 8, 2022 at 3:03 am | Permalink

    Mr. Nolan, I am a 72 year old retired person on fixed income with limited assets. I am considering taking an in-kind distribution of physical property from my self-directed IRA. The property is a condo which I would like to own personally, possibly to live in myself. I purchased the unit 5 years ago for $63,000. It has appreciated in the last two years far beyond my expectations, and the currrent appraisal of market value is $150,000. As I understand it, I must pay federal tax at 37% to take this distribution and accomplish my goal. I do not have the capability to cover the tax, so I am in a predicament about what to do, or other possible options. Any advice you might have would be greatly appreciated.

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