Self Directed IRA
I rarely work with self directed IRAs. A situation came up to that it just that – a self directed IRA.
Inherited IRA – invested in real estate LP
The beneficiary states they are taking tax deduction from depreciation. My question – can a beneficiary (of an inherited IRA) receive tax benefits from asset depreciation (i..e real estate) while held in an IRA.
Thank you
Permalink Submitted by Alan - IRA critic on Wed, 2020-10-07 21:13
No. Holding RE in an IRA eliminates current tax deductions for operation of the real estate in exchange for future gains. IRA tax rules trump all rules and deductions for reporting real estate operation and sales that apply when RE is held in taxable accounts. Does not matter if the IRA is owned or inherited.
Permalink Submitted by ShipsnGiggles on Wed, 2020-10-07 23:40
article online…I would apreciate your thoughts – see bold/italicized section BIT refers to the tax that is paid on a UBTI or UDFI. UBIT can apply to pass through or untaxed entities that are used to own or operate a business. This means that if your self directed IRA makes a debt financed purchase, such as buying an investment property with a mortgage or loan, then UBIT can occur. UBIT would occur if you decided to rent out the investment property, and were thus receiving taxable business income from your investment.In order to avoid this potential tax, you can instead use a self directed IRA to make 100 percent cash purchases for all real estate investments. Alternatively, deductions can be used, such as depreciation and expenses, to lower the net-income that would otherwise be taxed via UBIT.If you are planning on using your self directed IRA to purchase real estate, remember to calculate the estimated yearly UBIT based on the net-income that the property earns (if and only if you are using a debt-leverage to purchase the property).
Permalink Submitted by David Mertz on Thu, 2020-10-08 00:52
This deduction for depreciation would be claimed by the IRA on Form 990-T to reduce UBTI. It cannot be claimed on the IRA owner’s individual tax return.