In-kind Distribution of a % of Real Estate for RMD Purposes
I have a real estate client who has a self-directed IRA, He needs to make an RMD by year end and primarily only has real estate. He wants to know if he can do a grant deed of 25% of the FMV of the property without disqualifying the IRA as a prohibited transaction. I can’t find anything in 509-b that discusses that.
Permalink Submitted by Alan - IRA critic on Mon, 2016-08-15 19:33
He really should not have put himself in this position, knowing that RMDs would soon begin. He can certainly satisfy his RMD using this method, but it sets him up for a devastating prohibited transaction. Perhaps the SD IRA custodian can provide some guidance in how to avoid that. For example, he would have to pay 75% of his property tax and insurance from the IRA and 25% from other accounts. And is he then going to take tax write offs for his expenses and depreciation on the 25% share? He might want have his IRA sell a property to raise enough IRA cash to satisfy the next several years of RMDs. Or he might delay his RMD until he sells this particular property, then self report the late RMD and take 2 RMDs next year. The IRS would probably waive the late RMD penalty if he self reports and files a 5329 stating that he could not take his RMD in time because the assets were illiquid and he needed time to sell.