Brunswick, GA asked in Tax Law for South Carolina

Q: Can I live in a foreclosure house jointly bought by me and my checkbook self-directed IRA during renovation?

I am retiring soon, and plan to roll my government 401K-type plan into a self-directed checkbook IRA, with me as administrator and possibly also custodian.. The principal investment will be flipping foreclosure homes. I plan to buy the houses jointly with my IRA, to maximize the funds I have available. Is there any way I can legally live in the house while it is being renovated? If the house is 1/2 mine and 1/2 the IRA's, can I say that I'm living only in my half? When I buy the house, do I need to take title jointly in my name and the IRA, or my name and myself as the IRA administrator? Would it be better just to borrow the maximum $50,000 from my IRA, buy and renovate the house from personal funds, then repay the loan? I'd like to be able to use all of the funds from my IRA, rather than just the $50,000, if possible.

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2 Lawyer Answers
Eric  Day
PREMIUM
Eric Day
Answered
  • Tax Law Lawyer
  • Henderson, NV

A: You cannot live in the house. Anything that you use IRA money to buy cannot be for the benefit of the IRA member. You can manage the LLC that you set up, but you cannot work on the house yourself nor live in it during renovation. That is a prohibited transaction and will cause the IRS to potentially shut down your IRA

Eric  Day
PREMIUM
Eric Day
Answered
  • Tax Law Lawyer
  • Henderson, NV

A: I neglected to answer the other questions. The 50K loan limitation is more a 401k requirement. You cannot lend money to yourself from your Ira. It is considered a distribution and you have to put the funds back within 60 days. If you don’t put the funds back within 60 days it is considered a distribution and is taxable. However, if you can put the money back in 60 days, you can use the entire balance of the IRA and not just the 50k limitation. With a checkbook IRa there is usually an LLC that you are managing which allows you to write the checks. So you would take title in the LLC’s name.

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