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165015Form 5471 - SA in an IRA

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  • jackdiv
    Feb 19, 2014
      This topic was posted a while back and I had an interesting exchange with somebody else in the same boat. I apologize if you are talking about the same SA-IRA. Essentially, if the IRA custodian holds the SA with the property, they are responsible for any reporting. I would emphasize that it is important that your custodian does this. If they are a professional investment house, you are probably OK. If the custodian is Joe Bookcooker, CPA, you may have a problem. Ultimately, if the caca hits the Westinghouse, you may be in a long convoluted discussion with the IRS - never a good thing. You are only responsible for reporting things like distributions, contributions to ROTH IRAs, Roth conversions, etc.

      A caution is that this sort of arrangement is ripe for what the IRS calls Prohibited Transactions with an IRA. These are things like the taxpayer selling property (including an SA, I would assume) to an IRA, buying property for current or future personal use, etc. A competent professional custodian should not allow Prohibited Transactions.

      All distributions from IRAs (including capital gains) are taxed as ordinary income and there are many expenses around rental property that cannot be deducted by the taxpayer if the property is held in an IRA. You need to analyze the pros and cons based on your particular situation, but there certainly are some disadvantages to this setup. There may be some upside as well. Are some advisers promoting this arrangement?