Self Directed IRA LLC

Does a selfdirected IRA LLC file a tax return

Self-Directed IRA LLCs can be an excellent way to invest in non-traditional or alternative investment assets such as real estate, tax liens, private businesses and precious metals.

Typically, utilizing an LLC does not alter the IRS tax treatment of IRA investments; however, two specific situations exist which necessitate reporting requirements – these are known as UBTI and UDFI reporting obligations.


Self-directed IRA LLCs can be an excellent way to invest in alternative assets like real estate, tax liens, private business opportunities and precious metals without incurring costly custodian fees. By maintaining checkbook control over investments made within an SDIRA account holder’s SDIRA LLC they have greater flexibility while cutting fees associated with traditional custodial accounts.

Use of an LLC as an IRA does not alter the tax treatment of income or losses for an IRA account holder; they still must report gains and losses related to those assets on their personal tax return to the IRS.

However, in certain instances a self-directed IRA LLC must file tax returns. If it incurs Unrelated Business Taxable Income (UBTI) or Unrelated Debt-Financed Income (UDFI), then an IRS Form 990-T must be filed.

As a pass-through entity, an LLC only pays tax on profits generated from business activities related to its tax exempt purpose. When owned by an IRA, this means it will only pay tax on those profits generated related to this tax exempt purpose.

An LLC must also file Form 1065 with the IRS to maintain accurate record keeping, including recording their assets’ value and ownership structure.

When investing in alternative assets that are not publicly traded, such as hedge funds or real estate investments, seeking professional advice from an attorney, investment advisor or CPA is absolutely vital to ensure their investments comply with all applicable laws and are suitable for your IRA account.


Investors looking for complete control of their retirement funds without going through a custodian can use a self-directed IRA LLC. In such an arrangement, the owner serves as manager of the LLC with signing authority for contracts and investments while having access to an LLC business checking account.

If an IRA owns 100% of an LLC and there is no Unrelated Business Taxable Income (UBTI) or Unrelated Debt-Financed Income (UDFI), the IRS treats it like a sole proprietorship and doesn’t require them to file federal income tax returns. Any profits earned are passed through directly to their owner on Schedule K-1 forms; who then reports this income on his or her personal tax return.

However, if an LLC has multiple owners and UBTI or UDFI is applicable, then an informational tax return must be filed as well as Schedule K-1 forms showing each owner their share of income, loss, deductions and credits from the LLC. IRA owners will then be taxed according to their portion of profit on their individual income tax returns.

Additionally, an LLC must file both informational federal tax returns and state taxes. Although most states don’t impose additional fees or levies against LLCs, California levies a corporate tax for those earning over $250,000 annually.

An IRA LLC can invest in almost any alternative investment approved by the IRS, including real estate, tax liens and deeds, private companies, precious metals and more. To maximize returns from your IRA LLC investments and comply with IRS rules and regulations effectively, work with a custodian that understands these transactions and can handle them successfully – please speak to an attorney from our affiliated law firm for guidance in doing this.

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