Building Real Estate Wealth – Watch Out for This Expensive TAX TRAP!

If you plan on using financing to help your IRA to acquire real estate you have walked smack dab into one ugly tax trap under the name of “Debt Financed Income”. Financing or as the tax law refers to it as “leverage” refers to obtaining a Mortgage, seller carry-back note, a private or hard money loan.

Normally income earned by an IRA is not subject to taxes, however, if real estate is purchased with borrowed funds, the income will be considered “Debt Financed Income” and the profits generated will be subject to “Unrelated Business Income Tax (UBIT).


The simplest explanation is, that the IRA is using non-IRA money to make tax deferred profits. Since the purpose of the IRA is to invest personal pre-tax contributions the use of non-IRA funds falls outside this design and results in a percentage of profits being taxed at trust tax rates in the calendar year when the profits are realized.

Here is an example, if your IRA purchased a property for $100,000, and financed $60,000 of the purchase price, the debt/basis percentage would be 60%, and so the IRA would have to include 60% of the profits as taxable income.

Lets say your profit on the sale of this single family house was $50,000 x 60% (debt basis) then $30,000 is considered “Debt Financed Income” and is subject to  “Unrelated Business Income Tax” which is assessed at trust tax rates – in this case up to 39.6% which amounts to a kick in the gut tax hit totaling $10,238.00

Oh by the way, if you think you can dodge the bullet because you are going to rent the house, think again. The net profits from your rent roll are also subject UBIT each and every year– Yikes!

Wouldn’t is be great if “Unrelated Business Income Tax” could simply disappear?

This is where choosing the right type of plan makes all the difference in the world.

A One-Participant 401k plan is NOT subject to UBIT as long as the financing is non-recourse to you personally. Congress actually created a special tax code exemption for Qualified Pension Plans (401k’s) that removes them from the profit sucking UBIT vacuum an IRA cannot escape.

Choose a One-Participant 401k plan and you can gorge yourself on all the financing you want to and invest in high ROI real estate properties for wealth building. Under market value real estate investments are a great way to build wealth, and the solo 401k is the way to do it.

ph:  928-350-8368
fax:  928-318-6695

Seize Control of Your Own Wealth Management Now!

We’re living in a very exciting time and savvy investors are wasting no time in putting their retirement plans to work to capture juicy real estate investment returns. People everywhere realize that the real estate opportunities available right now will most likely never be repeated again during their lifetime.

Is your retirement nest egg still sitting there at the mercy of the stock market? A market which can drop like a lead balloon at the mere mention of a negative rumor. Perhaps it is time to rethink your retirement plan investing options?

Most people hold their retirement savings in traditional and widely-known vehicles such as; company-sponsored 401k plans, online IRA brokerage accounts and the like. But these are the same vehicles that have people up in arms due to the gut wrenching losses they have experienced.

You see, most “traditional” retirement plans only offer limited selections that are based in the equities markets. Problem is, these investments are driven by and subject to whatever impacts Wall Street and lately that has been just about everything.

Maybe you were among the millions of people who were pummeled in 2016 by two major corrections that resulted in $3 Trillion dollars evaporating overnight. How many people saw their retirement dreams go up in smoke in less than 24 hours? If you are sick and tired of the roller coaster ride on Wall Street then perhaps it’s time you explored so called, non-traditional investing.

Wall Street lives by two iron clad rules. Get CONTROL of your money and keep CONTROL of your money – anything else is unacceptable to them. They have absolutely no interest in helping educate you that they are NOT the only game in town.

A Self-Directed Retirement Plan = Freedom of Choice!

Self-directed retirement plans can help you break free of the investment restrictions your current custodian places on you. By utilizing a self-directed plan, a whole world of alternative investments opens up.

It’s not difficult to transfer your money over to a self-directed custodian. Your custodian of choice will walk you through the process of transferring assets into your self-directed plan and will also provide you with guidance on what you can and cannot invest in with your new retirement account.

Just what types of real estate investments open up to you with a self-directed retirement plan?

Here is a just a partial list of idea starters-

  • Raw land
  • Residential homes
  • Commercial property
  • Apartments
  • Duplexes
  • Condos/townhomes
  • Mobile homes
  • Real estate notes
  • Real estate purchase options
  • Self-storage units
  • Tax liens certificates
  • Tax deeds

All of these investments and more are available when you have a self-directed retirement plan! Take control of your own wealth management!

I have no doubt your curiosity has been piqued by this brief article – stay tuned as the next series of articles will pull back the curtains revealing even more about the secret that Wall Street hopes you’ll never discover.

ph:  928-350-8368
fax:  928-318-6695

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