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For (perhaps) further clarification....

I set up a self-directed traditional IRA with PENSCO, transferring cash from another traditional IRA that I owned. This new traditional my-IRA purchased an almost-finished house. Before the my-IRA began finishing house, market dropped again and our income was a little less for the year. My-IRA paid for a professional appraisal (per trustee's instructions), and I converted the traditional my-IRA to a Roth my-IRA, and paid the appropriate taxes on that conversion.

The Roth my-IRA has now started hiring some people (none related to me or even us) to do the little bit of finishing and remodeling necessary to make the place rentable.

City council might make it so that Roth my-IRA could hire a surveyor and split the property into a house on a 1+/- acre lot and a vacant .9+/- acre lot. My-IRA would then hire an appraiser to determine the value of both parts. Once the market value of both parts was assessed, approved, and recorded, my-IRA trustee could make an in-kind distribution to me of the vacant lot. I believe (haven't paid a huge amount of attention to the particulars of this next part since it's not been relevant yet) that the property gets re-titled as part of the distribution in-kind process.

At this point I, not my-IRA, would own the vacant lot. My husband and I would go down to the courthouse and file the paperwork to re-title the lot jointly in our names, rather than just mine. My-IRA will continue to operate/manage the rental; my husband and I will do whatever with the distribution--just like we would with a distribution of cash or stocks.

My-IRA trustee, PENSCO, provides forms with detailed instructions for all transactions. They seem to update these pretty regularly. I ask questions when I'm not clear on a step or process, including reading through tax code and IRS court cases on occasion. I try to post questions here, but there don't seem to be many people actually involved with these self-directed IRA's, so it's harder to make use of tribal knowledge than it is with many of the topics discussed.

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