Purchasing real estate from an IRA
Client owns controlling interest of a C-corporation. Also has a Traditional IRA which hold 4 undeveloped lots. Corportion engages in real estate developement. Client recently sold a commercial building and has $1 million in cash in corporation. Lots were appraised this year and are worth total $250,000 to $300,000. Can corporation purchase lots from IRA for market price? This would allow lots to be developed by corporation and client to have cash for investment in IRA.
Permalink Submitted by Alan Spross on Tue, 2011-07-12 17:33
It would be a prohibited transaction if client owned 50% or more of the stock or voting rights of the Corp. The Corp would then be a disqualifed person with respect to transactions with the IRA.
Permalink Submitted by mk foss on Wed, 2011-07-13 00:52
The only way that the corporation could obtain the lots (that I can see) would be for the IRA to distribute lots to the owner (taxable at FMV) – then the owner could sell them to the corporation. His basis would be the FMV when distributed so there would be little or no gain. If they were sold at a loss, the loss couldn’t be recognized because the parties are related.
A prohibited transaction could make the entire IRA taxable to the owner. He should have asked questions before the IRA purchased the lots.