How can an IRA or IRA-owned entity be a member of a QOF partnership entity?

Answers

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  Matthew Rappaport

  Falcon Rappaport & Berkman

  April 27, 2021

  It is not constructive to use an IRA for QOF investing. The IRA is itself a tax-exempt vehicle, and even after getting the 10-year QOF benefit, you'll still pay ordinary income taxes on distributions from the IRA. If the IRA is a Roth, you get the tax benefits of a QOF without investing through a QOF. Either way, there is no value in QOF investing through an IRA. Matthew E. Rappaport, Esq., LL.M. (Taxation) Falcon Rappaport & Berkman PLLC  1185 Avenue of the Americas, Third Floor New York, New York 10036 T: (212) 203-3255 x 132 F: (212) 203-3215 D: (212) 453-9889 mer@frblaw.com 265 Sunrise Highway, Suite 50 (MAIL) Rockville Centre, New York 11570 T: (516) 599-0888 F: (516) 599-0889 We have a Great Neck satellite office and access to several meeting locations on the North Shore. Please refer to our e-mail policies here if you are not already familiar with them.

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  Matt Campbell

  Hall Estill

  April 27, 2021

  I do not suggest using a self-directed IRA for this purpose as any debt leverage in the property will create UBTI, unrelated debt finance income issues (UDFI) to the IRA (Trust), which would then require the IRA to file tax returns. The tax rates on income to a self-directed IRA (SDIRA) for UDFI can be significant. I advise instead setting up a separate LLC and making an election for it to be taxed as an S corporation for your second member in a QOF partnership (or use another partnership you might be part of and have that member own 0.1-1% of the QOF).

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  Maria De Los Angeles Rivera

  Kevane Grant Thornton

  May 07, 2021

  Only eligible taxpayers may defer capital gains via investment in a QOF ( taxpayers subject to tax on capital gains). On the other hand, anybody may invest in a QOF since mixed funds are allowed. The way you will structure depends on your goals and the source of the funds.

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