Parcel of land in IRA

Submitted by Marina Ferrone on Mon, 2020-11-23 20:22

Taxpayer received a 1099-R for 2019 reflecting a $7,000 distribution from an IRA that contains a parcel of land only. Is this taxable?



Submitted by Alan - IRA critic on Mon, 2020-11-23 20:45

If taxpayer distributed title to the land, it will be taxable except to the extent of any basis in the IRA.

Submitted by Marina Ferrone on Mon, 2020-11-23 22:08

Hi Alan – thanks for your quick reply.  Our understanding is that the land parcel was placed in the IRA some years ago and Vanguard issued a 1099-R for $7,000 as a distribution in 2019?  This is close to the decrease in land value as of 12/31/19.  Could this be why they issued the 1099-R for the $7,000?

Submitted by Alan - IRA critic on Mon, 2020-11-23 22:24

  • There should only be a 1099R if a distribution was actually made. It is possible to distribute a portion of a parcel if there is an RMD or plan to control the taxes by not distributing the entire parcel in a single year. The IRA owner should know why the 1099R was issued.
  • If 7000 is not the total value of the IRA, it is also possible that if the IRA owner ignores a request from the custodian to provide an appraisal so that the custodian can properly issue a 5498 reporting the year end value of the account, the custodian can resign as custodian and distribute the IRA. This does not happen too often, but it can happen and the taxpayer would know if they have been ignoring requests from the custodian or not.
  • Taxpayer could not be confusing a 5498 for a 1099R could they?  A decrease in value would not trigger a 1099R, only a distribution would. But a 5498 should be issued regardless of valuation change showing the new year end value. 

Submitted by Marina Ferrone on Mon, 2020-11-23 23:21

Hi Alan – thank you again.  We pulled a transcript from the IRS and it reflects the 1099-R with a code K.  This tells me that the taxpayer possibly may have ignored valuation requests.  We didn’t see the 5498 on the account transcript.  Taxpayer is not RMD age.   The taxpayer claims that the $7,000 is the decrease in land value and believes the distribution is not taxable but the 1099-R reflects the distribution as taxable.

Submitted by Alan - IRA critic on Tue, 2020-11-24 02:55

  • The IRS will expect the 1099R income to be reported. But the Code K may or may not arise from a custodian resignation. A resignation notice would have to be sent to the last address of record, and such a notice may or may not have been sent, but the 1099R should only be issued if there is an actual distribution of the property. This does not add up, so there is some data missing. Best to contact the IRA custodian to determine exactly what happened and why it happened.  Most of the concern is the whereabouts of the actual deed to this parcel, since the principal is worth more than the tax bill. Following is info on Code K.
  • IRS Clarifies Use of New Distribution Code K on Form 1099-R – Ascensus

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