Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (16) | Ignore Thread Prev Thread | Next Thread
Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120812  
Subject: Buying rental land... Date: 5/6/2011 6:51 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I might have the opportunity to buy farmland adjacent to my uncle's land.
Which I'd rent to him, and possibly in 20 or so years it could be developed.

I'm wondering is what it'd mean tax-wise...

When I make a trip to the area (~$1200 in plane tickets for the family), would I be able to claim that as a business expense to go collect the rent and inspect the property?

And what would be the pros/cons of buying it in a Roth IRA?
Or a regular IRA?
Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113372 of 120812
Subject: Re: Buying rental land... Date: 5/6/2011 7:07 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
When I make a trip to the area (~$1200 in plane tickets for the family), would I be able to claim that as a business expense to go collect the rent and inspect the property?

There is no way that passes the sniff test.

And what would be the pros/cons of buying it in a Roth IRA?
Or a regular IRA?


A regular IRA would convert captial gains to regular income tax.

What type of fees are you going to pay to hold land in an IRA?

Buying from your uncle is not prohibited from self-dealing, but it does mean that none of your family (spouse, parents, children, grandchildren) can use or buy the land.

Do you have sufficient assets in an IRA to pay cash for the land? What happens if you uncle is no longer able to farm and ends the rental agreement?

Print the post Back To Top
Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113374 of 120812
Subject: Re: Buying rental land... Date: 5/6/2011 8:46 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Buying from your uncle is not prohibited from self-dealing,
Wouldn't be buying from my uncle - buying land from his neighbor.

Do you have sufficient assets in an IRA to pay cash for the land?
Let's assume that I do.

What happens if you uncle is no longer able to farm and ends the rental agreement?
Well, presumably I rent it to another farmer, or possibly sell it in whole or in parts. (probably depending on what is done with the adjacent parcels).
Farming it is another possible option - but probably would not be ideal. (everything would have to be done by custom operators coming in)

Print the post Back To Top
Author: numbrel Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113376 of 120812
Subject: Re: Buying rental land... Date: 5/7/2011 7:56 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Well, presumably I rent it to another farmer

If you need the rent money, you should find out if there is indeed farmers renting land in your area.

In Colorado, my dad rents his field to the people who run a successful corner vegetable stand. However, the next generation is not interested in carrying on the business. When that happens, there will be no demand for rental land. The area is built up and the farmers are few and getting fewer.

In western Minnesota, my BIL says there is no one to rent to. Everyone who wants to farm already have their own land and lots of land is going fallow as farmers get old and can't do as much as they used to.

Barbara


Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113377 of 120812
Subject: Re: Buying rental land... Date: 5/7/2011 12:14 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Farming it is another possible option - but probably would not be ideal. (everything would have to be done by custom operators coming in)

This will require a very careful handling to avoid self-dealing. You will need legal advice.

Does the IRA have the cash to pay the taxes, water, and the custom operators before the crops are sold?

Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113378 of 120812
Subject: Re: Buying rental land... Date: 5/7/2011 4:29 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Buying from your uncle is not prohibited from self-dealing,
Wouldn't be buying from my uncle - buying land from his neighbor.


I should have said renting to your uncle doesn't appear to be a prohibited self-dealing.

Print the post Back To Top
Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113380 of 120812
Subject: Re: Buying rental land... Date: 5/8/2011 5:09 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
This will require a very careful handling to avoid self-dealing. You will need legal advice.
That might be a good reason to avoid doing it within an IRA.

Does the IRA have the cash to pay the taxes, water, and the custom operators before the crops are sold?
I assume that's a rhetorical question.



In western Minnesota, my BIL says there is no one to rent to
Really?
I would think there'd be people willing to rent it for cash cropping... Probably "no one to rent to at the price I want".

Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113381 of 120812
Subject: Re: Buying rental land... Date: 5/8/2011 1:01 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
In western Minnesota, my BIL says there is no one to rent to
Really?
I would think there'd be people willing to rent it for cash cropping... Probably "no one to rent to at the price I want".


Not necessarily. Most farmers aren't interested in renting additional land. Farming is hard work. Success requires knowledge that is acquired through work.

Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113382 of 120812
Subject: Re: Buying rental land... Date: 5/8/2011 1:09 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
Does the IRA have the cash to pay the taxes, water, and the custom operators before the crops are sold?
I assume that's a rhetorical question.


Not completely, the response to what happens if the uncle does not continue to rent the land is that it might be necessary for the OP to "farm" the land. Since the land is held in an IRA, the IRA has to cover all expenses. Dancing with the self-dealing requirement means that the owner of the IRA can't "lend" the IRA funds. Paying to have the property farmed is likely to cost more than the value of the crops.

Print the post Back To Top
Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113383 of 120812
Subject: Re: Buying rental land... Date: 5/8/2011 3:33 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
I assume that's a rhetorical question

Speaking of which, one from me to the pros. I've stayed out of this discussion, but this sounds very much to me like the IRA is running a business, either rental real estate, agricultural division, or running a farm with sharecropper tenants. (Even though my roots are in Kansas my tax knowledge of farming is limited to the fact that all those flyover states with two senators each have resulted in incredibly complicated tax law when hoe hits dirt.) Does this expose the IRA to UBIT issues?

Please note, this isn't a quiz. I haven't the foggiest idea what the answer is, but it keeps gnawing at wary-of-exotic-IRA-investments me.

Phil
Rule Your Retirement Home Fool

Print the post Back To Top
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113384 of 120812
Subject: Re: Buying rental land... Date: 5/8/2011 3:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
I'm not an expert on UBIT and even less of one when it comes to farming. However, rental of real estate is specifically exempt from UBIT although rental of personal property is subject to UBIT. In a very quick perusal of the instructions for Form 990-T and Pub. 598, I don't see any UBIT exemption for farming activities.

Ira

Print the post Back To Top
Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113390 of 120812
Subject: Re: Buying rental land... Date: 5/9/2011 1:38 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
"I assume that's a rhetorical question."
Not completely,


Well, perhaps you're OK with posting your financials on a public website for all to see.
I'm not.

Since the land is held in an IRA,
Whoa - slow down there - my question (I started this thread) was:
" And what would be the pros/cons of buying it in a Roth IRA?
Or a regular IRA? "

I haven't decided if I'd buy the land or not - nor how I'd buy it.
There's another thread about someone that appears to be set on doing property within an IRA - I'm just looking at what my options are.
So - I think you wanted to say
IF the land is held in an IRA ...

Paying to have the property farmed is likely to cost more than the value of the crops.
Probably not this year - corn is relatively high this year - other crops as well. Some say its because ethanol plant's demand for corn production is pushing that up, and therefore more land is being used for corn, and less for other crops, so the price on other crops is going up as well.
(I say "probably" because it is possible a severe weather event could significantly decrease the yield. But that's very unlikely. It could be a significantly worse than average year for weather, and the output would cover the inputs.)

Print the post Back To Top
Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113391 of 120812
Subject: Re: Buying rental land... Date: 5/9/2011 1:45 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I'm not an expert on UBIT and even less of one when it comes to farming. However, rental of real estate is specifically exempt from UBIT although rental of personal property is subject to UBIT. In a very quick perusal of the instructions for Form 990-T and Pub. 598, I don't see any UBIT exemption for farming activities.

Ira

========================
That's right, and as to the rental of real estate, while the character of rents as gross income is not UBTI, by definition, income from debt-financed property IS.

Similarly interest and dividends can also be UBTI if held in a margin account. (Which generally won't happen because most brokerages have a compliance checklist that they go over when opening IRA accounts. But I've seen it pop up with other exempt orgs. with a regular brokerage account.)

Bill

Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113393 of 120812
Subject: Re: Buying rental land... Date: 5/9/2011 1:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Well, perhaps you're OK with posting your financials on a public website for all to see.
I'm not.

I didn't ask for specifics, only if the IRA had sufficient assets to cover the purchase and continuing costs. You didn't specify the size of the parcel. It could be any size and the land cost could be anywhere from a few thousand to hundreds of thousand.

Since the land is held in an IRA,
Whoa - slow down there - my question (I started this thread) was:
" And what would be the pros/cons of buying it in a Roth IRA?
Or a regular IRA? "


Okay, change the sentence to "Land held in an IRA." I didn't mean to imply that you had already purchased the land.

We are discussing the issues of holding rental land in an IRA. I don't see advantages for rental land in a TIRA. Some tax is deferred, but losses can't be written off and appreciation is taxed as regular instead of capital gains rate. A ROTH migates some of these issues, but the self-dealing and cash requirements are serious issues.

Print the post Back To Top
Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113394 of 120812
Subject: Re: Buying rental land... Date: 5/9/2011 2:00 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
That's right, and as to the rental of real estate, while the character of rents as gross income is not UBTI, by definition, income from debt-financed property IS.

Is it possible to obtain a loan for property held in an IRA? By definition, the loan can't be for a residence. If possible, the interest rate would likely be very high.

Print the post Back To Top
Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 113395 of 120812
Subject: Re: Buying rental land... Date: 5/9/2011 3:10 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
That's right, and as to the rental of real estate, while the character of rents as gross income is not UBTI, by definition, income from debt-financed property IS.

Is it possible to obtain a loan for property held in an IRA? By definition, the loan can't be for a residence. If possible, the interest rate would likely be very high.


It's legal to obtain a loan for property held in an IRA, but as Bill points out, doing so makes any of the income generated from the debt financed assets subject to UBIT. Whether it's possible to find a lender willing to finance the loan, and what terms would be attached to the loan, are other questions entirely.

Ira

Print the post Back To Top
UnThreaded | Threaded | Whole Thread (16) | Ignore Thread Prev Thread | Next Thread
Advertisement