The Do’s and Don’ts of Self-Directed IRA LLC Real Estate Investing

A self-directed IRA LLC is commonly used to invest in real estate such as family homes, commercial real estate, farm land, condos, and rentals.

As with all IRA investments, certain rules when investing an IRA LLC in real estate, and running afoul of the IRA prohibited transaction rules can result in serious tax consequences.

Examples of Prohibited Self-Directed IRA LLC Transactions

For example, it would be prohibited to engage the IRA funded LLC in the following transactions:

Example 1:

A lease between the IRA LLC  and the son of the IRA owner

Ben’s IRA LLC owns a duplex. One of the tenants is Ben’s son, Matt. As a party-in-interest, Matt’s leasing of the duplex results in an IRA prohibited transaction because children are disqualified parties.

Example 2:

Sale or exchange or leasing of any property between the IRA LLC and a disqualified person

Ben holds a parcel of land in his self-directed IRA LLC. He now wants to build his primary residence. Ben wires funds from his IRA LLC bank account to purchase the land. This investment would result in a prohibited transaction because Ben falls under the disqualified party category. You are not allowed to build your own home on a parcel of land owned by the IRA LLC.

We’ve put together the following do’s and don’ts to help guide IRA LLC investors in the self-directed IRA LLC real estate investment process.


Personal Fund Depreciation QUESTION

If I form an IRA LLC with 50% IRA funds and 50% my own non IRA funds, can I write off depreciation expense on my non IRA fund income?

Yes, if you form an IRA LLC with 50% IRA funds and 50% of your own non-IRA funds, you can write off depreciation expense on the portion of income generated by your non-IRA funds. However, it’s important to note that the portion of income generated by your IRA funds would not be eligible for depreciation. What is more, this assumes the LLC does not have any debt. 

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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 >>

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