of purchase. This can mean ordinary
income arises in an amount equal to
the fair market value. In addition, if
the IRA owner is under age 59½, the
"deemed distribution" may be subject
to a 10 percent additional tax based
on the value of the collectibles.
Investment in Subchapter S
corporation Stock?
against your IRA investing in the stock
of a Subchapter S corporation, but if
you do invest the IRA in a Subchapter
S corporation, the corporation will be
disqualified under Subchapter S and
will become a taxable corporation under
Subchapter C. This is because only
certain types of trusts can qualify to own
Subchapter S corporation stock without
terminating the Subchapter S election.
An IRA does not qualify as an allowable
trust. While this may not impact you,
particularly if the only stock in the
corporation you hold is through your IRA
which is generally exempt from income
tax (with the exception of unrelated
business taxable income as discussed
likely be very unhappy if your IRA's
investment terminates the qualification
for Subchapter S status for all of them.
things you cannot or should not invest
in, so absolutely you can invest in real
estate. You can not only invest directly
in various types of real estate, but also in
debt obligations secured by real estate
or in entities (such as a limited liability
company) investing in real estate. The
only caution here is that you need to
be aware of the prohibited transaction
rules, the taxability of unrelated debt
financed income and the Plan Asset
Rules which are discussed in separate
chapters of my book.
About this?
traditional trustees and custodians
of IRAs are banks, brokerage firms
and similar institutions which do
not traditionally focus on real estate
investments. It has always been easier
for them to recommend stock, bond and
mutual fund investments rather than
We also understand from several of the
companies that do provide services as
custodians allowing your IRA to invest
in real estate, that having to handle
the necessary paperwork to allow for
real estate investments is simply less
profitable for the custodians and trustees.
Therefore, many traditional custodians
and trustees tend to stay away from
informing you about those possible
investments.
cannot begin to touch on the other
subjects such as prohibited transactions
and disqualified persons, unrelated
business taxable income and the Plan
Asset Rules with which you should be
familiar before you have your IRA invest
in real estate. I refer you to my book for a
full discussion of these issues.