How Is Flipped Re In Sdira Taxed?(capital Gains Or Income)?

Hello,
I am contemplating rolling my IRA into a SDIRA so that I can fund a real estate(re) purchase and subsequent sale but am wondering if the transaction would get taxed(when I finally collect the funds after age 70.5)as capital gains increase of real estate or as income tax? I have been to the http://www.trustetc.com/ website and others but do not see this specifically addressed. Do the capital gains of the re just dissappear to be replaced by straight income tax??

Thanks,
stocknre

Comments(6)

  • blueford30th October, 2004

    All distributions from IRAs are taxed as ordinary income. As long as you don't need a mortgage on the properties, I would think that it would work.

  • NewKidinTown230th October, 2004

    I think the question about whether distributions from your IRA are taxable depends upon whether your IRA is traditional or Roth. Good question to ask your IRA custodian.

    Operating an active income business from within an IRA brings Unrelated Business Income Tax into play. Best to discuss your investment strategy with the IRA custodian to ensure that your investment strategy is both permitted and avoids the UBIT issue.[ Edited by NewKidinTown2 on Date 10/30/2004 ]

  • blueford30th October, 2004

    Good point. When he mentioned distributions at 70 1/2, I assumed he meant required distributions and was referring to a traditional since Roths don't have required distributions.

    But you know what happens when one assumes.

  • stocknre30th October, 2004

    Thanks for the replies -

    My hypothetical is for a traditional ira
    that I will withdrawl all at one time after
    the age of 70.5. Assume that I have
    $50k in it to start, buy a tax aution house
    for $50k and over the years the house
    appreciates to $150k. When I sell the house and pull out $100k(leaving the original $50k in) from the
    ira I will have to pay taxes on
    the $100k increase in basis(income tax rate or long term capital gains rate?). It sounds like you folks answered with "INCOME tax " would need
    to be paid and we forget about the lower
    capital gains tax rate(in this case).

    (I understand that with the ROTH I would
    pay tax now and not then...but then, if I did that, I would not have the $50k to start with to buy the tax deed.)

    Thanks for your input!
    stocknre

  • NewKidinTown231st October, 2004

    I am not an IRA expert, but it sounds like you are talking about taking your 100K profit out as an early withdrawal.

    Early withdrawals are taxed as ordinary income AND there is an early withdrawal penalty (either 10% or 25%, I am not sure which).

    Additionally, you say that you have a traditional IRA and that you will take all your IRA balance as a lump sum after age 70.5. I believe the rules require you to prorate your withdrawals over your projected lifetime. The latest you can delay starting withdrawals is the year you turn 70.5 years old. Your lump sum strategy may still incur early withdrawal penalties in addition to ordinary income taxes.

    By the way, if the Roth IRA has your $50K it could still purchase your tax lien property, hold the property, sell the property. No difference between the traditional IRA and the Roth in executing your strategy. It is just that the contributions to a Roth are made with after tax dollars, and there is a difference in the tax impact of withdrawals.

    Again, I am not well versed in the mechanics of an IRA. Best to take these questions to your IRA custodian to address these specific details.[ Edited by NewKidinTown2 on Date 10/31/2004 ]

  • stocknre1st November, 2004

    I guess I need to check into this as I assumed one could withdraw funds as one saw fit after 70.5(I knew there was a min withdrawl but not a max).

    Thanks for the heads up!

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