Buying Leveraged Real Estate With Your Retirement Plan

by Bruce Givner on July 17, 2014

Most people are unaware that they can buy investment real property in the pension and profit sharing plans sponsored by their business. (Exception: not if you or a related party occupy the property. That would be a prohibited transaction, subject to a 15% non-deductible excise tax and the requirement to unwind the transaction.) For those who are aware that the retirement plan can buy investment real property, most are unaware that the plan can buy the real property using debt. They are concerned that the use of debt will transform a portion of the income and gain into UBTI - unrelated business taxable income.

Internal Revenue Code Section 514(c)(9) has existed for decades. It permits a retirement plan - but not an IRA - to invest in real property using debt without suffering UBTI. So, assume your retirement plan buys a duplex for $2,000,000 by making a $600,000 downpayment and getting a $1,400,000 non-recourse loan. Assume the property throws of net income of $100,000 per year. That income is non-taxable to the retirement plan. However, if you have to guaranty the loan, that is a prohibited transaction. If you provide management services to the property, that is also a prohibited transaction. What if you want to buy one-half of the property and the retirement plan buys the other half? That is permissible if structured properly. What if your retirement plan buys 40% of a building, you buy 40% of a building, a stranger buys the other 20% and your business occupies 40% as a tenant? That is also permissible. However, it is very tricky so you should not do so without very careful advice.

In conclusion, you do not have to have a self-directed IRA to invest in real property. Your business retirement plan can do so in a more attractive fashion, as long as you get good advice.

Contact Us today to learn more about buying leveraged real estate with your retirement plan.

Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.

Leave a Comment

Previous post:

Next post: