People want to know if they can use their tax protected IRA funds to buy and sell property quickly without the long term commitment to property ownership and management that is part and parcel with owning rental properties.
The reality is that buying and selling properties on a regular basis, as an identifiable pattern of activity, can cause the Self-Directed IRA to be treated as a business for tax purposes. So the answer is dependent of the frequency that you expect your IRA to flip properties, if it is a one-time event we’ll usually recommend that you go forward with the Self-Directed IRA/LLC. If however you expect to flip properties regularly, then an alternative structure may be desirable.
Whenever a retirement plan invests in a business the rules require that the company be set up as a Corporation or else the IRA faces a significant tax penalty on its profits. That penalty is called Unrelated Business Income Tax or UBIT and typically the penalty is going to be more than 30%.
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