Real Estate as Distribution

Taking Real Estate as a Distribution

So I thought I’d talk a little bit about how to take property as a distribution. We had a client we set him up, probably eight years ago with a Check Book IRA and he was from Alaska and he loved to hunt and fish. And there happened to be a cabin out in the woods that came up for sale so he bought it with his Check Book IRA LLC. Now, he understood the prohibited transaction rules and we really schooled him in that. We said, “Now, look, you can’t use this yourself. You can’t be renting it to your folks, your spouse, your kids, yourself or any company you guys own. Buy you can rent it out to other people and put the money back into the LLC and it’d be a nice investment. It’d be something you enjoy and you can stop and check on it and keep it up.” And he wanted to do that with the future in mind of when he would retire and he would use it. So about eight years went by and he reached 59 1/2 so he wouldn’t have the 10% early withdrawal penalty. So he called us up and he said, “How do I go about doing that?” That’s one of the services that we provide for our clients. We don’t charge any annual fee; they can call us up and we’ll help them out, you know, years later. And so he did. So we explained to him, basically what we did, was we have a couple of appraisal companies, we put him in contact, they got comps, they got an appraisal– figured out what the property would bring, fair market value, out on the real estate market. And then they wrote that up as an appraisal, then he submitted that to the custodian and transferred the title from the LLC back to the IRA, along with the appraisal, and then notified and took a distribution. In kind, basically said, “Hey, I don’t want money, I want the title to this property and here’s the value,”– since it’s not cash, he had to get an outside appraisal– “Here’s the value of that property.” The custodian looked at it, stamped it with an approval, sent him the title– the title, the deed and everything. It was an assignment of the ownership, went to him and now he, personally, owns it, and he got a 1099 sent to him at the end of January and he owed taxes the next April 15th of that coming year, the 15th. I think he took the distribution in February, so he didn’t have to pay taxes on it for about 14 months. But he got a 1099 for the appraised value and that’s what he paid tax on it. Now, he personally owns that property. He said the property around there has gone up, like, 150% and, you know, he got it tied up a long time ago and, anyway, so now he’s hunting and fishing out on that property. And there are some other ways that I’ll discuss in other videos, how he could even reduce that distribution by about a third, as far as the value.