WINTER 2025

36THE DISTRIBUTOR’S

36THE DISTRIBUTOR’S LINKRoman BasiRoman Basi is the President of The Center for Financial, Legal & Tax Planning, Inc. Roman graduatedfrom Milliken University obtaining a Bachelor’s of Science Degree with a minor in Psychology. Heearned an MBA from Southern Illinois University with an emphasis in Accounting and recevied hisJD degree from Southern Illinois University. Roman is a licensed CPA as well as being a licensedattorney in Illinois, Missouri and Florida and is in high demand for his expertise in financial, legaland tax matters. His areas of expertise include mergers and acquisitions, contracts, real estate law,tax and estate planning. Visit www.taxplanning.com or call The Center at 618-997-3436.SELF-DIRECTED IRA FOR REAL ESTATEPlanning for retirement is a long, and sometimestricky process. You have many different options atyour disposal, depending on your employment type andgoals. For those who wish to avoid the volatile stockmarket and look for greater diversification with theirinvestments, such as real estate, a self-directed IRA(SDI) may be for you.Self-directed IRAs are required by the IRS to usean IRA custodian to handle the transactions andmaintain responsibility for record-keeping and reportingrequirements. However, SDIs are independent of anybrokerage, bank, or investment company that wouldmake decisions for you. As it states in the name (selfdirected),you can make decisions on what the SDIinvests in.To invest in real estate with a SDI, you will need tofind the property that you wish to purchase through theIRA. Once the property is identified, the IRA custodianmakes the transaction on your behalf. The real estateis then owned by the IRA, with all contracts in the IRAsname and any income generated from the investmentgoes back into the IRA. While it is preferable to buy theproperty outright, you can take out a loan that’s securedby the property itself (non-recourse loan) if the IRA doesnot have the funds to do so. However, you will be subjectto unrelated business income tax (UBIT) on any profitsrelated to the financed portion.As your IRA does not pay any taxes, you are unableto take advantage of the deductions that come withowning real estate. On the bright side, none of themaintenance or any other associated costs will come outof your pocket. It is important to keep track of your IRAbalance to ensure that you do not run low on funds toCONTRIBUTOR ARTICLEpay for costs associated with the property. Remember,you cannot pay for anything related to the property out ofyour pocket, and the IRA contributions are limited.To properly have an SDI for real estate, the propertymust purely be an investment. You cannot use it asa vacation home, second home, office, or have anyassociation with a disqualified person. Along with this,the property cannot be purchased from a disqualifiedperson as this is called a “self-dealing” transactionand considered a prohibited transaction. A disqualifiedperson includes:¤ You¤ Your Spouse¤ Your parents, grandparents, and great-grandparents¤ Your children and their spouse, grandchildren,and great-grandchildren¤ Service providers of your IRA¤ Any entity that owns more than 50% of the property.It is important to note that you cannot have a hand inthe maintenance of the property. If something needs tobe fixed or repaired on the property, you will need to hirea contractor or a professional (who is not a disqualifiedperson) to make the repair. The cost of this would needto be paid by the IRA. If you were to be a self-proclaimed“handy man” and fix the property yourself, that would beconsidered an untaxable contribution to the IRA.What happens when/if you decide to sell theproperty held in your SDI? You would work out a salesprice, just like any other real estate deal. Once theterms and purchase price are set, you would have yourcustodian sell the property on behalf of the SDI and allproceeds would go back into your IRA, either tax-deferredor tax-free, dependent upon the makeup of your IRA.ROMAN BASI