detail about depreciation and IRA real estate is that once the debt ratio of your investment property’s loan calculates to zero (over the last 12 months), you no longer have to capture depre- ciation upon the sale of the property. This fact can significantly influence your IRA real estate investment strategy, as keeping the benefits of yearly depreciation without having to recapture can provide investors with a huge advantage. Run the numbers for your investment to determine which IRA real estate strategy will be the best fit for you. You can enlist the experience of a tax or accounting professional to help you calcu- late your debt percentage and your potential UBIT percentage. •
can also offset taxable UBIT profits. In other words, if your 12-month average debt ratio used to calculate UBIT is 50 percent, you may offset that taxable income with 50 percent of deductions. In the short term, you can use expenses to off- set income and lessen the percentage of profits that is subject to UBIT. The less taxable profit you have, the more money you can make for your IRA. To realize long-term benefits of debt-leveraging your real estate IRA, once you pay off your IRA’s loan and your debt ratio calculates to zero (by averaging the last 12 months), you will no longer have to pay UBIT on any of your profits. You can then sell the property without having to pay UBIT on the profits from the sale. Because the property was bought with a tax-deferred or tax-free IRA account, there are no capital gains taxes on any of the real estate IRA’s profits. Depreciation provides investors with tax breaks each year throughout the life of the investment property. When you pur- chase property outside an IRA, you must recapture the depre- ciation of the property upon sale of the home. A little-known
Chief Development Officer Clay Malcolm oversees most avenues of mar- keting, teaches continuing professional education and informal classes and webinars, and facilitates the training of business development and client representative teams at New Direction IRA Inc., a self-directed IRA provider that assists more than 12,000 clients nationally. Malcolm, who has more than 20 years’ management experience in various roles, draws upon his teaching
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