Real Estate and 1099s
Have a client who has real estate in his IRA (for investment purposes). He was told that he would receive a 1099-R for any earnings he made on the property while renting it out. I’m confused. Why would he receive a 1099-R or any other 1099 for this? Is there any time he would receive a 1099 for real estate being held in his IRA (other than when it was distributed from the IRA)?
Thank you for any assistance you can offer. Also, if you have any back-up, they would be greatly appreciated. I just can’t find anything on point.
Permalink Submitted by Christopher Smith on Mon, 2008-06-23 19:51
He is saying that it isn’t the income he receives that would trigger the 1099, but the actual expenses paid out (real estate taxes), etc., would trigger a 1099.
Permalink Submitted by Alan Spross on Tue, 2008-06-24 04:04
It shouldn’t trigger a 1099R if the IRA custodian is competent in the self directed IRA arena. In fact, the property taxes MUST be paid out of the IRA in order to avoid a prohibited transaction. These tax payments should be considered tantamount to a typical IRA custodian sending funds to an outside mutual fund company to buy shares. They are not distributions to the IRA owner.
Otherwise, if would not be possible to have RE or certain other investments in an IRA since these investments have on going expenses that the IRA must pay for.