I am reviewing a park with homes that already in contract. My SDIRA does not have enough fund to purchase the park, homes and contract. I am thinking to use my SDIRA to purchase the contract and non-SDIRA to purchase the park and home inventory. Am I allowed to do that? Any input or pointer will be greatly appreciated. Thanks.
No! That is self-dealing.You can not use your regular money to benefit your retirement money. There is an inherent symbiotic relationship between mobile homes and the land they sit on. They are not economically separate (yes, they are legally separate, but that’s not enough for the IRS). You would be in a position to, say, charge lower lot rent into the land in order to shift payments toward the contract homes owned by your SDIRA. You’d thus reduce your current-period earnings (and taxes) on your regular capital that owned the land, and collect more tax-deffered income into your SDIRA. That is self-dealing.I’m not a tax attorney, but I do play one on TV, so here is my advice:1. Find a financial friend. Have him/her purchase the contract homes with their regular or SDIRA money. You then go purchase the mobile homes in their property to help them get around the same problem with their limited capital, or2. Purchase a smaller MHP that you can 100% fund with either your regular or SDIRA money, or3. Find a partner to co-own this property with you so that you have only your regular or your SDIRA money in it, or4. Probably some other creative solution I’ve not thought of. Let me know if you think of it.My 2 cents worth,-jl-
My understanding is for self-directed IRA, it can’t be re-coursed. So, If I were you, I would ask the owner to owner finance the amount that you have in self-directed IRA and then pay him back; or if I had 30% total down payment, I would ask the owner to Finance the whole deal! Best Wishes!
Just putting it out there, I think the IRS does not allow an IRA to receive income from a leveraged investment unless you file a special return & pay tax on the leveraged profit. In other words, your IRA can’t invest in something that has debt unless that something is paying its own taxes, or your IRA pays UBIT (see below).Thus, if property purchased with SDIRA money is financed by a bank, then the proportion of the income received by the IRA that is bank-financed is taxable via “UBIT” which is the “unrelated business income tax.” The general idea is that non-profits (here, your IRA) are not allowed to multiply their non-profit income using leverage unless they pay tax on the leveraged portion.I do not think, erudolph86, that you actually suggested buying the park with money from a S/D IRA but if you did you’d probably want to talk to a tax professional about it.Good luck!Brandon@Sandell
Thanks for all the input.Yes, my initial plan was to pay cash with SDIRA for the contract. And finance the park and POH with non-SDIRA.But I agree with Jeff, this is self dealing.