Tax Results of Sale of Appreciated Property to or From Own IRA

[Guest Kevin A. Wiggins]

Ignoring the prohibited transaction issues, what are the tax consequences of selling appreciated property to your own IRA? And vice versa, what are the tax consequences of buying appreciated property from your own IRA? I have my thoughts, but I wanted to throw this out there and see what others think.

[mbozek]

The sale of property to the IRA would be a taxable gain for the owner if the fmv exceeds the cost basis. see Rev. rule 73-345. But a loss would not be deductible under IRC 267(b)(4) because the transaction is between related parties. See Rev rul 61-163. The sale of the property by the IRA would result in a taxable gain for the sale price either because the IRA is disqualified or because the basis of the property held by the IRA is 0 (other than AT contributions).

[Guest Kevin A. Wiggins]

You said:

"[t]he sale of the property by the IRA would result in a taxable gain for the sale price ...." Recognized gain for the IRA owner? Or, assuming a traditional IRA, gain at distribution? With a Roth IRA, would gain be irrelevant?

Why would the IRA be disqualified?

[mbozek]

A PT by the IRA owner is deemed a taxable distribution of the entire deductible IRA to the owner. IRC 408(e)(2). Distributions from a Roth IRA are treated under the same rules as distributions from an IRA. IRC 408A(a). See IRS pub 590, P 59 for taxation of Roth IRAs. Also the 10% penalty tax will be due if the owner is under 59 1/2.

[Guest Kevin A. Wiggins]

But if you ignore the PT issues (assume you get a DOL exemption and that the exemption works for IRS purposes), how is the gain treated?

[mbozek]

What do you think?

[Guest Kevin A. Wiggins]

I think if the IRA is a ROTH IRA and the gain is distributed properly then the gain never gets taxed and if the IRA is a traditional IRA and the gain is distributed properly it is taxed as ordinary income on distribution. I have, however, been told that may not be the case.