HSAs (“Health Savings Accounts”) are growing in popularity as Americans are discovering significant tax savings with these accounts. Why are they popular? There are many reasons why; some well known and others not so well known.
Let’s start with the primary benefits that are generally well known:
First, contributions to an HSA are fully deductible regardless of your income, and there is no high-income phase-out. The deduction also applies whether you itemize on your tax return or not, so everyone gets to use it. This isn’t the case for other major deductions like charitable contributions or mortgage interest, which only apply if you itemize on your tax return and itemizing is getting less common after tax reform that was enacted in late 2017. The other commonly known benefit of the HSA is that it can grow from the investments tax-free and comes out entirely tax-free to pay for or to reimburse the account owner for their qualifying medical expenses. For a quick summary of the basics and for qualifying rules, check out my partner Mark J. Kohler’s article here.
Now, lets discuss the additional benefits of an HSA that aren’t as well known:
You don’t need earned income to contribute to an HSA
Contrary to retirement plan rules for IRAs and 401(k)s, which require you to have earned income (i.e. wage, self-employment income) to contribute, you do not need to have earned income to contribute to an HSA. You can make the contribution from any source and that contribution will be a deduction against other income on your tax return (i.e. rental income, investment income, etc.).
Your spouse can inherit your HSA with no tax due
If you’ve built up an HSA that you don’t end up using, you can pass the HSA on to your spouse. A spouse can inherit the HSA and can transfer it over to an HSA in their name. The surviving spouse can then use the funds for their qualifying medical expenses during their lifetime. If the account is inherited by a non-spouse beneficiary, then the account is considered fully taxable to the person receiving the account. Non-spouse beneficiaries (i.e. children) are allowed to use the account to pay for the deceased account owner’s qualifying medical expenses for up to one year of the date of death as medical bills and expenses are determined, and then any remaining balance is distributed to the non-spouse beneficiaries and is subject to taxation.
You can self-direct your HSA and invest it into real estate or other alternative assets
Many HSA account owners just let their HSA funds sit in a savings account or they invest into mutual funds. Some place their HSA funds into a brokerage account,and buy and sell stock. And others are investing them into real estate, private LLCs, precious metals, private equity, venture capital or start-ups. Like a self-directed IRA, an HSA can be invested into all of these alternative assets and are subject to the same prohibited transaction rules and UBTI tax as IRAs and other accounts. We’ve been advising clients for years on how to self-direct their HSA and are now helping clients establish self-directed HSA accounts at Directed IRA & Directed Trust Company. We’ve seen account holders invest them into private placements, real estate, and into HSA-owned LLCs.
The IRS recently announced that the State Department will be denying passports, and may revoke yours if you have a “seriously delinquent tax debt.” A seriously delinquent tax debt is where you owe more than $52,000 (including interest and penalties). While this law has been on the books for some time, the IRS recently started sending certifications of seriously delinquent taxpayers to the State Department last year.
If you owe the IRS money and have plans to travel abroad, there are a couple of options you can use to maintain or obtain a passport even through you may be a “seriously delinquent taxpayer.” Here are the most common options:
1. Installment Agreement
Enter into an installment agreement with the IRS to repay the debt (i.e. A payment plan). So long as you are current on your installment agreement, you can obtain or maintain your passport. An installment agreement is essentially and agreement whereby you agree to the debt owed and set-up a payment plan to have it paid back over time. The IRS usually requires financial disclosures in order to determine the payment amount and schedule. You can learn more here.
2. Offer in Compromise
Have a pending offer in compromise with the IRS, or be paying timely on an agreed upon offer in compromise. An offer in compromise is a method of negotiating a compromise on the amount owed to the IRS. The IRS only accepts an offer in compromise if there is a debt as to the liability (i.e. There is a legitimate tax question over your position and that of the IRS), or there is a doubt as to collect-ability (i.e. “Can you really pay it back?”). You can learn more about an offer in compromise here. Keep in mind, so long as the offer in compromise request is pending, you can still obtain or maintain your passport. So, start here if you still have issues to work out with the IRS before you agree to the amount owed in an installment agreement. Though, if you don’t have a legitimate reason for an offer in compromise, you should consider the installment agreement.
If you’ve got plans to travel abroad AND you’ve got a serious tax debt, be proactive about paying it back with an installment agreement or start the process of making an offer in compromise. You don’t want to be surprised by a letter in the mail from the state department that your passport has been revoked. Or even worse, have non-refundable travel plans that have to be cancelled because your passport is revoked. And, last but not least, be abroad and have your passport revoked and your travel status in jeopardy. You may just end up spending your foreign trip at the local U.S. Embassy.
IRAs are the most overlooked opportunity in real estate. Let me explain.
First, there are over 9 Trillion Dollars in IRA accounts in the U.S. This number is staggering and makes IRAs one of the largest sections of investable cash in the world. Source, Investment Company Institute & Federal Reserve Board. But what does this have to do with real estate? Well, contrary to popular belief, IRAs have always been able to invest in and own real estate. They can own single family rentals, or flip properties, or own LLCs that own multi-family or commercial real estate. They can also invest as a private lender on real estate.
At this point in the IRA and real estate conversion. I’m usually asked, why have I never heard of this before? Well, the major providers of IRAs have generally found real estate to be “administratively unfeasible” as it takes more work to handle and administer than a publicly traded stock or REIT does. In other words, the brokerage and insurance firms who administer most IRAs restrict their IRAs to…well…the stuff they sell like publicly traded stock, mutual funds, and annuities. You’ve always been able to own real estate in an IRA but there have been few IRA custodians who allow it and as a result it isn’t as widely known as it should be. This have been changing over the past decades as awareness has spread.
IRAs can own single-family rental properties. IRAs can own properties being flipped for profit. IRAs can invest in small private LLCs that own commercial properties or multi-family properties with other individuals or IRAs. IRAs can own options on real estate. And IRAs can lend money secured to other real estate investors as a private investor or hard money lender. You can’t, however, buy real estate for personal use or for use by certain disqualified family members. The assets owned by your IRA must be held for investment purposes.
In sum, any real estate owned for investment purposes can be owned by an IRA. The law has very few restrictions on assets owned by a retirement account. In fact, the only investment assets restricted for IRAs is life insurance, collectible items (e.g. art, antique car), and s-corporation stock. IRC 408(m);IRC 408(a)(3);IRC § 1361 (b)(1)(B). So all investment real estate is fair game for IRAs.
To own real estate with an IRA, you must establish what is called a self-directed IRA and transfer the funds from your current IRA provider (or prior employer 401(k)) to the “self-directed IRA” provider. There are many companies who offer these types of accounts, like my own company, Directed IRA and Directed Trust Company.
What is a Self-Directed IRA?
A self-directed IRA is an IRA that can invest into any investment allowed by law. Real estate is the most common investment for self-directed IRAs but they can also be invested into start-ups, private equity funds, venture capital funds, precious metals, and even crypto-currency. Let’s focus on real estate though.
There are a few critical issues to consider when buying real estate with an IRA.
The IRA Owns the Property, Not You Personally
Let’s go over a real estate rental or property you plan to flip with the IRA. The purchase contract to buy the real estate must be in the name of the IRA and the deed to the property will be in the name of the IRA. The IRA funds, including the earnest money deposit, will come from the IRA account. Keep in mind, the IRA account owner is not buying the property so the contract should not be in their personal name nor should the IRA owner’s personal funds be used. IRAs are held in the name of the custodian of an IRA. So, for example, if your IRA is with my company, Directed IRA & Directed Trust Company, the titling of your IRA would be Directed Trust Company FBO John Doe IRA. That is the name of the buyer on the contract and is the name on title to the property.
Improvement costs and expenses for the IRA owned property must be paid by your IRA and not personally by the IRA owner. Conversely, when there is rental income on the property or when the property sells for a gain then that income goes back into the IRA. Now, one of the huge perks of investing with an IRA is that there is no tax when the IRA makes money. That works with buying and selling stock for gain as well as buying and selling real estate for gain. Consequently, the rental income and the income when you sell the property is not taxable. If this is a Traditional IRA, then the money comes out tax-deferred at retirement and you pay tax as you draw it out. But if it is a Roth IRA, then money comes out tax-free at retirement…so put your best real estate deals in your Roth IRA. But remember, even the Traditional IRA grows tax-deferred with all income accumulating and growing until retirement.
Avoid Prohibited Transactions
When self-directing your retirement account, you must be aware of the prohibited transaction rules found in IRC 4975. These rules restrict WHOM your account may transact with, not what kind of investment your account may own. In short, the prohibited transaction rules restrict your retirement account from engaging in a transaction with someone who is a disqualified person to your account. A disqualified person to a retirement account includes the account owner, their spouse, children, parents, and certain business partners. So, for example, your retirement account could not buy a rental property that is owned by your father since a purchase of the property would be a transaction with someone who is disqualified to the retirement account (e.g. father). Similarly, you couldn’t buy a rental property from a third-party and then rent to your child as your child is a disqualified person. On the other hand, your retirement account could buy real estate from your cousin, friend, sister, or a third-party, as these parties are not disqualified persons under the rules.
A prohibited transaction can also arise if there is self-dealing where the IRA owner or disqualified family members are personally benefitting or making money from the IRAs investments. For example, if you are a real estate agent/broker and your IRA buys real estate you cannot receive the buyer’s agent commission as that would result in a financial benefit to you personally. You’d have to waive this fee and have the purchase price reduced or have someone else represent the IRA.
If an IRA engages in a prohibited transaction, the entire IRA account involved is deemed distributed and is no longer an IRA. Taxes and possible early withdrawal penalties apply under the normal distribution rules.
Use an IRA Owned LLC (aka, IRA/LLC or checkbook control IRA)
Many self-directed retirement account owners, particularly those buying real estate, use an IRA owned LLC as the vehicle to hold their retirement account assets. Under the IRA/LLC structure, the IRA typically owns the LLC 100% and the LLC in turn owns the real estate So, rather than buying real estate and owning it directly in the IRA custodian’s name, your IRA would invest and own an LLC and the LLC in turn would own the real estate.
The IRA/LLC is typically managed by the IRA owner. Under the structure, the IRA owns all of the membership/ownership units of the LLC but the IRA owner can serve as the manager of the LLC. Manager of an LLC is like the president of a corporation. The manager can sign for the LLC and can act on behalf of the LLC. As manager of the LLC, the IRA owner would establish an LLC bank checking account for the LLC and the IRA funds would be invested and deposited into that LLC business checking account. Because the IRA is funding all the investment dollars into the LLC, the IRA owns 100% of the LLC.
Now, the LLC is funded with the IRA cash and the IRA owner is the manager of the LLC. The IRA owner can decide how much cash to invest into the LLC from the IRA depending on the real estate they are planning to buy with the IRA/LLC. When offers to purchase real estate are made with an IRA/LLC, the LLC is the buyer on the real estate purchase contract and the earnest money deposit and final funds to close on the property would come from the LLC bank checking account. The IRA owner, as manager of the LLC, signs the real estate purchase contract and has control of the LLC bank checking account and can sign checks or send wires for the LLC account. Keep in mind, the LLC is owned 100% by the IRA and the LLC funds cannot be used for personal purposes and cannot be used to pay the IRA owner. If you ever want to take money from the IRA/LLC, you must send money from the LLC bank account back to the IRA (since the IRA owns the LLC) and you then take a distribution from the IRA.
And lastly, the IRA/LLC docs are unique and most contain IRA provisions in the LLC operating agreement and subscription sections. As a result, you should use a lawyer who is familiar with IRA/LLCs as many IRA custodians who allow for IRA/LLCs require an attorney or CPA to sign off on the docs. My law firm, KKOS Lawyers, has been drafting IRA/LLCs for over 12 years and charges a flat fee of $800 plus state filing fees. There are more complex IRA/LLC structures that involve multiple IRAs (e.g. spouses or other investors) and or combinations of IRAs and individuals and those structures are called Multi-Member IRA/LLCs and typically cost more to set-up.
How to Properly Get a Mortgage Loan With Your IRA?
Your IRA, or IRA/LLC, can get a mortgage loan when you buy real estate, but you need to know two things before you do.
First, the loan must be non-recourse to the IRA owner as the rules regarding IRAs do not allow the IRA owner to personally be responsible for the loan or to personally extend credit to the IRA. Under a non-recourse loan, the bank lends money to the IRA, or IRA/LLC, and gets a deed of trust or mortgage against the property securing the loan. In the event of default, the lender can foreclose and take the property back but cannot go after the IRA or the IRA owner for any deficiency in the loan. Because the lender’s ability to collect is limited to the property they loaned on, the banks who lend to IRAs require 30-40% down. There are several banks who specialize in these non-recourse loans to IRAs and an IRA owner is best served by using a bank or private lender who routinely provides these type of non-recourse loans.
Second, there is a tax called unrelated debt financed income tax (“UDFI”) that applies to an IRA when the IRA leverages its investment dollars with debt. Essentially, the IRS will tax the income from the debt invested while leaving the percent of the deal attributed to the IRAs cash investment not subject to tax. So, for example, let’s say your IRA bought a rental property for $100k with the IRA putting $40k cash down and getting a non-recourse loan for $60k. To the IRS, 40% of this deal is the IRA funds and 40% of the income is not subject to tax while the other 60% is non-IRA funds and that 60% is subject to tax. The tax on this 60% is UDFI tax. The tax rate on UDFI is the trust tax rates which maxes out at 34% on rental income. This is after expenses of course; which expenses include depreciation.
Upon the sale of the property, the IRS allows you to use the capital gains tax rate for the UDFI tax so you can move down from the 34% rate to the max long-term capital gains rate of 20%. Now technically, UDFI is a form of UBIT tax discussed below. But it applies in a very different way, when there is debt, so I explain it separately.
Many self-directed IRA investors will only buy real estate with cash in their IRA and won’t bother with a non-recourse loan and the UDFI tax burden while others view the UDFI tax as a cost of doing business and see debt as a tool to buy more property and thereby increase overall returns. Keep in mind, UDFI tax is only due on net rental income or net gain upon sale and this is after property expenses and depreciation expense.
Watch Out for Unrelated Business Income Tax (UBIT)?
There is a tax that can apply to an IRA’s income called unrelated business income tax (“UBIT”). Usually, when we think of IRAs, we aren’t expecting there to be taxes on the income and this is typically the case. However, there are a few situations where IRAs will have to pay tax on the income they make. These tax situations arise when the income being made is considered “business income” (aka, ordinary income) as opposed to investment income. Most real estate income is automatically exempt from UBIT. Exempt income from UBIT includes rental real estate income, capital gain income when you sell real estate, and interest income when you lend money on real estate. IRC 512. So let’s go over the common situations where UBIT tax is generally due.
First, there is the instance of debt mentioned above which causes UDFI. UDFI is a form of UBIT and applies to the profits attributable to the debt involved.
Second, if the IRA is doing real estate development activities, or is otherwise invested in real estate projects that create ordinary income it will need to pay UBIT tax on the profits. Real estate development income that is ordinary income in nature, as opposed to long-term capital gain, will cause UBIT for the IRA. It is possible to do real estate development with an IRA and hold the property for investment purposes. If a real estate development was done and the property held for investment, then the IRA would avoid UBIT tax. That being said, you should carefully consult with your tax lawyer or CPA on the details of your strategy and whether UBIT would apply.
The last situation where UBIT can apply is when you flip multiple properties with your IRA in a year. Since most fix and flip transactions are short-term in nature (under one-year hold time), IRA owners need to be careful not to do too many flips with their IRA in one year as the IRA can be deemed to be in the business of real estate. If the IRA is deemed to be in the business of real estate, then the income the IRA makes from the flips will be subject to UBIT. If the IRA is flipping one or two properties a year you don’t need to worry about the IRA being deemed in the business of real estate. However, if the IRA is flipping more a couple properties a year you should consult you tax lawyer or CPA on the exact details of your IRAs investments.
If your IRA is subject to UBIT, then the IRA files its own separate tax return called a 990-T and the IRA pays the tax due. This return is separate from the IRA owner’s personal tax return. The 990-T is the responsibility of the IRA owner and is not something that is generally prepared by your self-directed IRA custodian. You’ll need to engage a tax lawyer, CPA, or accountant to prepare and file the 990-T. Or you can complete it on your own, but it is a very technical return and there is little guidance on how it should be prepared for an IRA.
These rules can seem a little foreign and overwhelming at first. But I like to say that learning how to self-direct your IRA is like learning a new board game. It’s not that the board game rules are complicated. Rather, it is something you need to learn first before playing and moving pieces. When we play a new board game, we first read the rule book, or we play with someone who already knows the game. So, like playing a board game, read up on the subject and consider my book, The Self-Directed IRA Handbook, or play the game with others who knows the rules (e.g., a lawyer, CPA, advisor, or other investor). After you’ve properly self-directed your IRA into real estate once, you’ll have the rules down and it’s the same game each time thereafter…at least until Congress changes the rules of the game. And if they do, I’ll update my rulebook.
Self-Directed IRA investors should be aware of their self-directed IRA tax reporting responsibilities. Some of these items are completed by your custodian and others are the IRA owner’s sole responsibility. Here’s a quick summary of what should be reported to the IRS each year for your self-directed IRA. Make sure you know how these items are coordinated on your account as the ultimate authority and responsible tax person on the account is, you, the account owner.
IRA Custodian Files
Your IRA Custodian will file the following forms to the IRS annually:
Filed to the IRS by your custodian to report any distributions or Roth conversions. The amounts distributed or converted are generally subject to tax and are claimed on your personal tax return.
IRA distributions for the year, Roth IRA conversions, and also rollovers that are not direct IRA trustee-to-IRA trustee.
IRA Owner’s Responsibility
Depending on your self-directed IRA investments, you may be required to file the following tax return(s) with the IRS for your IRA’s investments/income:
DOES MY IRA NEED TO FILE THIS?
1065 Partnership Tax Return
If your IRA is an owner in an LLC, LP, or other partnership, then the partnership should file a 1065 tax return for the company to the IRS, and should issue a K-1 to your IRA for its share of income or loss. Make sure the accountant preparing the company return knows to use your custodian’s tax ID for your IRA’s K-1s, and not your personal SSN (or your IRA’s tax ID if it has one for UBIT 990-T tax return purposes). If your IRA owns an LLC 100%, then it is disregarded for tax purposes (a single-member LLC), and the LLC does not need to file a tax return to the IRS.
If your IRA incurs Unrelated Business Income Tax (UBIT), then it is required to file a tax return. The IRA files a tax return and any taxes due are paid from the IRA. Most self-directed IRAs don’t need to file a 990-T for their IRA, but you may be required to file for your IRA if your IRA obtained a non-recourse loan to buy a property (UDFI tax), or if your IRA participates in non-passive real estate investments such as: Construction, development, or on-going short-term flips. You may also have UBIT if your IRA has received income from an active trade or business, such as a being a partner in an LLC that sells goods and services (C-Corp dividends exempt). Rental real estate income (no debt leverage), interest income, capital gain income, and dividend income are exempt from UBIT tax.
April 15th, 6 -month extension available
Most Frequently Asked Questions
Below are my most frequently asked questions related to your IRA’s tax reporting responsibilities:
Q: My IRA is a member in an LLC with other investors. What should I tell the accountant preparing the tax return about reporting profit/loss for my IRA?
A: Let your accountant know that the IRA should receive the K-1 (e.g. ABC Trust Company FBO John Doe IRA) and that they should use the tax ID/EIN of your custodian and not your personal SSN. Contact your custodian to obtain their tax ID/EIN. Most custodians are familiar with this process, so it should be readily available. If your IRA has a tax ID/EIN because you file a 990-T for Unrelated Business Income Tax then you can provide that tax ID/EIN.
Q: Why do I need to provide an annual valuation to my custodian for the LLC (or other company) my IRA owns?
A: Your IRA custodian must report your IRA’s fair market value as of the end of the year (as of 12/31/18) to the IRS on Form 5498, and in order to do this they must have an accurate record of the value of your IRA’s investments. If your IRA owns an LLC, they need to know the value of that LLC. For example, let’s say you have an IRA that owns an LLC 100% and that this LLC owns a rental property, and that it also has a bank account with some cash. If the value of the rental property at the end of the year was $150,000, and if the cash in the LLC bank account is $15,000, then the value of the LLC at the end of the year is $165,000.
Q: I have a property owned by my IRA and I obtained a non-recourse loan to purchase the property. Does my IRA need to file a 990-T tax return?
A: Probably. A 990-T tax return is required if your IRA has income subject to UBIT tax. There is a tax called UDFI tax (Unrelated Debt Financed Income) that is triggered when your IRA uses debt to acquire an asset. Essentially, what the IRS does in this situation is they make you apportion the percent of your investment that is the IRA’s cash (tax favorable treatment) and the portion that is debt (subject to UDFI/UBIT tax) and your IRA ends up paying taxes on the profits that are generated from the debt as this is non-retirement plan money. If you have rental income for the year, then you can use expenses to offset this income. However, if you have $1,000 or more of gross income subject to UBIT, then you should file a 990-T tax return. In addition, if you have losses for the year, you may want to file 990-T to claim those losses as they can carry-forward to be used to offset future gains (e.g. sale of the property).
Q: How do I file a 990-T tax return for my IRA?
A: This is filed by your IRA and is not part of your personal tax return. If tax is due, you will need to send the completed tax form to your IRA Custodian along with an instruction to pay the tax due and your custodian will pay the taxes owed from the IRA to the IRS. Your IRA must obtain its own Tax ID to file Form 990-T. Your IRA custodian does not file this form or report UBIT tax to the IRS for your IRA. This is the IRA owner’s responsibility. Our law firm prepares and files 990-T tax returns for our self-directed IRA and 401(k) clients. Contact us at the law firm if you need assistance.
Sadly, not many professionals are familiar with the rules and tax procedures for self-directed IRAs, so it is important to seek out those attorneys, accountants, and CPAs who can help you understand your self-directed IRA tax reporting obligations. Our law firm routinely advises clients and their accountants on the rules and procedures that I have summarized in this article and we can also prepare and file your 990-T tax return.
An IRA must report its fair market value to the IRS annually. Fair market value is reported to the IRS by your IRA custodian via IRS Form 5498. For standard IRAs holding stocks or mutual funds, those account values are automatically determined as they simply take the stock or fund price as of the close of the market on December 31st each year. They then use these amounts to set the year-end account fair market value. For self-directed accounts, such fair market values are not readily available, and it becomes the IRA account owner’s responsibility to obtain their self-directed investment values so that their custodian can properly report the account’s fair market value. The value of an account is important for a few reasons. First, the IRS requires it to be updated annually. Second, it is used to set required minimum distributions (RMDs) for those account holders over the age of 70 ½ with Traditional IRAs. Last, the account value is used when converting an entire account, or a particular investment or portion of the account, from a Traditional IRA to a Roth IRA.
What is “Fair Market Value?”
Fair market value of an investment has been broadly defined by the Court as:
“The price at which property would change hands between a hypothetical willing buyer and a hypothetical willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.” U.S. v. Cartwright, 411 US 546 (1973).
Now here’s the hard part: Even though the IRS requires IRAs to update their fair market value on an annual basis, the Government Accountability Office noted in their recent report that:
“Current IRS guidance includes NO [emphasis added] guidance or advice to custodians or IRA owners regarding how to determine the FMV [fair market value]”. United States Government Accountability Office, GAO-17-02, Retirement Security Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets. (Dec. 2016).
The absence of guidance, however, has not relieved IRA owners or their custodians from obtaining and reporting this information. While there is no specific fair market valuation guidance for IRAs, there are commonly accepted methods of reporting value used by professionals and companies within the self-directed IRA industry. Most of these methods have been adopted from law and regulations governing employer retirement plans or estates.
Methods to be used by Asset Type
The table below outlines preferred valuation methods that are commonly used in the industry for the most common self-directed IRA assets. As you will note, when the valuation is needed for a taxable event, such as a distribution or Roth conversion, greater detail and supporting information will be required as the valuation will result in tax being due.*
Non-Taxable (Annual FMV)
Taxable (RMD, distribution or conversion)
Comparative Market Analysis (CMA) from a real estate professional is preferred. Some IRA custodians accept property tax assessor values or Zillow reports in non-taxable situations.
Real estate appraisal is preferred. Some IRA custodians accept a broker’s price opinion.
Value of a note can be reported by calculating the principal due plus any accrued and unpaid interest. This is the valuation method used for calculating the value of a note for estate tax purposes.
Same as non-taxable, principal amount due plus accrued and un-paid interest. For notes in default, a third-party opinion as to value is typically required in order for the note to be written-down below face value.
For bullion, use the spot value of the metal in question times the ounces owned. Spot value is widely reported on a daily basis on financial sites.
For acceptable coins, use market data for the coin in question via the Grey Sheets available at www.bullionvalues.com.
Same as non-taxable.
LLC, LP, or Private Company Interest
Obtain a third party-opinion of value of the LLC interest. The opinion should rely on IRS Revenue Ruling 59-60. For asset holding companies, the valuation should focus on the value of the assets. For operating companies, the valuation should focus on earnings.
Similar requirement, but the detail of the opinion should be more significant. For example, for an asset holding company where the IRA’s interest is determined by the assets of the LLC. A CMA would be acceptable for calculating that assets value in the company in an annual valuation. However, an appraisal of the real estate to calculate in that asset would be required in a taxable situation.
Since the valuation reporting policies of custodians vary, IRA owners should make sure that they understand their IRA custodian’s policies for valuations of the assets in question.
Our firm routinely assists clients with obtaining third-party opinions of value, and can assist IRA owners who need to produce a report or third party opinion as to an LLC or other investment interest held by an IRA. Call us at (888) 801-0010.
*Please note that there are clearly differences of opinions on these matters, and since there is no specific legal guidance for IRA valuations, please keep in mind that the table above is based on my own industry experience and opinions. Seek a licensed professional in all instances for your specific situation.
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Tom W. Anderson
The "Self Directed IRA Handbook" by attorney Mat Sorensen is the most comprehensive book ever written about one of the best investment and retirement savings tools ever created: the Self-Directed IRA. Mat has performed the impossible by effectively delivering complex information in an easily understandable manner for the layperson, while providing the necessary legal basis to suit the professional. Mat's book is a "must read" for investors, attorneys, CPAs, and other professionals and other interested individuals wanting to learn about all there is to know about Self-Directed IRAs.
Mat's books is a great reference guide for self-directed IRA investing – Best I’ve seen in 30 years of being in the business.
CEO, Polycomp Trust Company
Mat's book is an excellent resource for self directed IRA owners and their advisors. It is the first of its kind in our industry. Mat has truly written an “Authoritative Guide” for self directed IRAs.
President, Polycomp Trust Company
Mark J. Kohler
Mat is truly an expert on self directed IRAs, and his book is the one book that every self directed IRA investor should read.
Mark J. Kohler
CPA, Attorney, Author
I was referred to Matt for help in setting up an IRA owned LLC. Matt and his team did an incredible job completing the work in a few short days. The process was professional, efficient and cost effective. I continue to rely on Matt for guidance running the LLC and related real estate matters. Not only is Matt a good lawyer, he runs a great office. It is easy for me to recommend Matt and his team.
We have used Matt for many legal matters and he always comes through with shining colors. I highly recommend Matt for any legal or tax matter.
Real Estate Broker & Investor
Mathew is the legal partner for the majority of my clients. Matthew provides solid legal advice, precise strategic planning, appropriate corporate structure development, and is readily available to consult with his clients on all legal and business manners. Matthew is well respected and has an extremely large network in the successful real estate investor world. Matthew is reliable, professional and an all around great partner to have on your side
I have retained Mathew Sorensen several times for multiple real estate deals and have been very pleased with his efforts and work product and will continue to use him in the future.
Real Estate Investor
My wife and I recently sought Mat's help with estate planning and couldn't have been more satisfied. Mat's professionalism, honesty, creativity and attention to detail is second to none. What impresses me the most about Mat can be summed up as "diverse". Mat's vast knowledge and experience in a plethora of differing areas of the law is astounding. I highly recommend Mat to my clients and friends seeking legal help.
Mat is a highly qualified...lawyer specializing in real estate. He's personable and professional, knows his stuff and is a nice guy. It doesn't get any better than that. I really liked the way he explained everything to me at my level so I got it. He also advised the best way for me to proceed with my RE investments. He handled my case in a timely manner with high integrity.
I have had the opportunity to engage Mat's services on many occasions and have found him to be diligent and reliable. He has always been committed to delivering high-quality work and is very professional. He is well-liked and respected by his peers. He has my most sincere recommendation.
Mathew Sorensen is a great resource and I use him consistently for real estate law questions. He is a wealth of information and will always give you a great knowledge base. I have been using KKOS for a while now and am very impressed and happy with their services.
CPA, Real Estate Investor
Kenneth P. Child
[Mat] is completely devoted to his clients and continually strives to stay abreast of changes and updates in the law. Mat is an unbelievably hard worker and...I don't hesitate to recommend Mat's services to anyone as I know he will take care of them and give them simple, concise, and straightforward solutions to any legal issue they may be facing.
I am a partner in a law firm in Chicago and I have worked with Mat on my personal real estate and business ventures. Mat has given me practical and wise advice which has helped me make profitable decisions. I highly recommend Mat.
Attorney & Real Estate Investor
Mathew is an excellent attorney, well versed in the Self-Directed IRA market…His ability to distil the complexities of the Self-Directed IRA so that the average person can understand them, and ensure that they don't get "tripped up" is second to none. Anyone interested in this Self-Directed IRA Market would do well to connect with Mathew and learn from the best.
"Mat's book is an excellent resource for self directed IRA owners and their advisors. It is the first of its kind in our industry. Mat has truly written an“Authoritative Guide” for self directed IRAs."
"Mat is an excellent attorney, well versed in the Self-Directed IRA market...His ability to distill the complexities of the Self-Directed IRA so that the average person can understand them, and ensure that they don't get "tripped up" is second to none.
"Mat’s book is the most practical and comprehensive self directed IRA guide in our industry. Reading this handbook should be the first step for any alternative asset investor, investment sponsor, or trusted advisor that seeks to become informed about how to maximize the value of IRAs."
"The Self Directed IRA Handbook by attorney Mat Sorensen is the most comprehensive book ever written about one of the best investment and retirement savings tools ever created: the Self-Directed IRA."
Founder and Retired CEO, PENSCO Trust Company
Mat’s book is the most practical and comprehensive self directed IRA guide in our industry. Reading this handbook should be the first step for any alternative asset investor, investment sponsor, or trusted advisor that seeks to become informed about how to maximize the value of IRAs.