IRA each year is considered passive income and is not taxable. • Non-recourse loan purchase through an LLC: The LLC buys a 10-unit apartment building for $500,000. Half is financed using IRA assets, and the balance is financed through a non-recourse loan. The building generates $100,000 in rent annually. Because the IRA owns only 50 percent of the property outright, only half of the rent is considered tax-deferred.
The LLC will have to pay taxes on the remaining $50,000 in the unrelated debt- financed income (UDFI) category of UBIT using IRS Form 990-T by the 15th day of the fifth month following the end of the calendar year. Over time, as the IRA pays down the principal, its percentage of ownership will increase, along with the percentage of rent it can claim as tax- deferred income. There are two other wrinkles when an LLC owned by an IRA has to file
IRA Form 990-T: The taxable income is taxed not as personal income, but under the trust tax rates, which are significantly higher than personal income tax rates. In addition, because the IRA may have to file its own tax return, it must have its own Employer Identification Number. (Use IRS Form SS-4 to get an EIN.) You also should ask your tax professional whether your state requires LLCs to file a tax return in this situation. •
BY JOHN PAUL RUIZ
John Paul Ruiz, QKA, CISP, is Director of Professional Development for the Entrust Group. Ruiz brings to the team over 20 years of experience in the retirement and financial services industries. Before joining Entrust, he served as Vice President of Professional Development for Integrated Retirement Initiatives, LLC. He has also gained valuable retirement plan insight from his roles at Ascensus, the IRA Institute and American Bankers Association, among others. To complement his extensive career within the retirement and finance industries, Ruiz holds QKA and CISP certifications. He helps the Entrust team remain compliant with ERISA regulations and offers valuable insights about the retirement industry to help the company better serve its clients. 800-392-9653 | www.theentrustgroup.com
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