Can a se;f-directed IRA buy real estate and return funds thru mortgage payments

Forum|Forum|6 years ago
December 7, 2019
2 replies
29 views

funds from ira rolled over to a self-directed IRA. Self-directed IRA purchases real estate from an unrelated LLC> mortgage payments then returned to self directed IRA

Lacerte Tax

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Best answer by George4Tacks

This does not sound quite right. Is there an independent custodian of this self directed IRA?

IRA purchased Real Estate - This infers that there was likely a cash purchase of this real estate, so I am unclear as to what mortgage is involved.

Mortgage payments returned to self directed IRA - I thought IRA was the owner of the real estate.

I think you need to ask several more questions to see if this is properly established and managed, although this is possibly a bit outside our wheelhouse. I had one like this. The entity purchasing this real estate ended up being a different entity than the one the sold the real estate. Fortunately this client never returned for a second year. There is some hinky stuff going on out there.

George4TacksAnswer

Level 15

This does not sound quite right. Is there an independent custodian of this self directed IRA?

IRA purchased Real Estate - This infers that there was likely a cash purchase of this real estate, so I am unclear as to what mortgage is involved.

Mortgage payments returned to self directed IRA - I thought IRA was the owner of the real estate.

I think you need to ask several more questions to see if this is properly established and managed, although this is possibly a bit outside our wheelhouse. I had one like this. The entity purchasing this real estate ended up being a different entity than the one the sold the real estate. Fortunately this client never returned for a second year. There is some hinky stuff going on out there.

Answers are easy. Questions are hard!

qbteachmt

Level 15

That scenario does seem backwards: Isn't the Seller/Lender collecting mortgage payments? How would that go back to the Buyer (IRA)? And why would you buy real estate inside an IRA, when everything there becomes taxable as ordinary income. Real Estate operations outside of an IRA get more favorable tax treatment. Any revenue from a rental held in an IRA, taken for living expenses, is a distribution from the IRA, as well. What a bad idea.

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