This week we have another great question from Mark who would like to know: What is a 990T and how would I know if I have debt in my IRA?
If you had to borrow money to buy an asset such as real estate, you may have debt in your IRA. Your IRA can hold debt as long as it is non-recourse debt, which means that you did not sign for, or guarantee, the loan. In this situation, the only thing the lender can do if the IRA defaults on the loan is to take the asset back that is securing the debt. For example, if you buy real estate and the IRA defaults on the debt, the lender will take the property back. There are firms that will give loans to IRAs, but they are not often the best loans and may have high interest rates, large percentage down payment requirements or balloons payments.
If you have debt in your IRA, it may trigger unrelated debt-financed income. Basically, your IRA is earning income by using borrowed money and you have to pay tax on the income derived from the debt. You will use a 990T form to report this tax to the custodian of your account, who will then take money out of the IRA to pay the taxes to the IRS.
If you have specific questions about how to determine if you have debt in your IRA and how to calculate the tax owed on that debt using a 990T, leave us a note in the comments below and we will try answering them on an upcoming video. For more great videos about managing your finances with Sunwest Trust, click the subscribe button above. You can also visit our website, www.SunwestTrust.com, for more information on how our products and services can help you meet your financial goals.
If you have specific questions about how to determine the fair market value of the assets in your self-directed IRA, leave us a note in the comments below, and we will try answering them on an upcoming video. For more great videos about managing your finances with Sunwest Trust, click the subscribe button above. You can also visit our website, www.SunwestTrust.com, for more information on how our products and services can help you meet your financial goals.
The Q & A is a weekly feature, and anyone can put up any investment related question to him in the comments below.
Please be sure to visit our website for more videos and other features. As always be sure to contact a CPA or a tax professional with any legal questions you may have.
Terry White of Sunwest Trust reveals the rules for owning non-recourse debt in your IRA! Share this video liberally.
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Are you interested in learning more about opening a self directed IRA, then watch this: https://www.youtube.com/watch?v=05pXLGc-cCQ
Leveraged IRA – Non Recourse Debt in IRA – Borrow Money Buy Real Estate in IRA – UDFI – Filing 990T #buy #homes in the #USA #realestate
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