real estate IRA gone bad / returned to originating IRA TAX?
I have a conventinal IRA acct with Merrill. Early this year I was presented with what seemed like an attractive opportunity to invest with my son-in-law in some real estate in Mexico. Merrill doesn’t allow real estate so I transferred a decent chunk of change to another/new IRA with somebody else who does allow this type of investment in an IRA. To make a long story short, the opportunity never materialized, so I closed the new IRA and moved it all back to the same originating Merrill IRA.
My question is that now its tax time and I got my 1099R that indicates that this big chunk was a distribuition even though it was basically a reversed transaction. I understand that I have to pay taxes when I take a normal distribution but this wasn’t normal. I’ve been looking at IRS forms 5498 and 5329 but am very confused. Any thoughts or comments would be greatly appreciated. 😥
Permalink Submitted by Kristin Kippen on Wed, 2008-01-30 22:27
This sounds like a simple IRA transfer to me. Assuming you did a direct IRA transfer (transferred it from Merrill directly to the new custodian) to the new custodian and then a direct transfer back to Merrill, and you never received the funds, it is non-taxable. You will recieve a 1099R from Merrill showing the amount of the distribution, and then a 5498 from the new custodian showing a rollover of that amount in. Then you will have a 1099R from the new custodian showing the amount they distributed back to Merrill and a 5498 from Merrill showing the rollover amount received back. You should report the total distributions on your 1040 as IRA distributions and then $0 taxable since it was all transferred to IRA accounts and you never received the funds. If you DID receive the funds, then it would be another issue.