IRA Supports New Home Purchase So That Client Can Benefit From Tax Free Capital Gain on Sale of Old Primary Residence.
Case outline: Mr. Bennett is 46 years old and married. Mr. Bennett has a high level sales position with an international company which requires extensive travel. However, when he is not on the road, he is able to work from home. This allows him and his wife to live anywhere that is within reasonable distance of an airport. Because Mr. Bennett is away from home much of the time, his wife wanted to move closer to family. They found just the home they were looking for on small acreage just thirty minutes drive from Mrs. Bennett’s sister. Mr. Bennett liked the idea of dedicating IRA monies to support the purchase of the new home so that the tax free capital gains from the sale of his existing home could be applied to other investments.
The Lasaii division of Uranga & Associates assisted Mr. Bennett in placing approximately $380,000 of his IRA in a SAFE HARBOR® IRA account - the structural foundation to his IRA real estate plan. This SAFE HARBOR® IRA account insures against loss of principal value due to investment exposure during the life time of the contract. Mr. Bennett’s SAFE HARBOR® IRA account was then structured to provide an income stream to be used to pay interest and principal on the home mortgage for their new home. Any tax liability generated by this income stream was calculated to be offset by allowable real estate tax deductions. Mr. Bennett’s IRA will continue to make these mortgage payments for a minimum of 18 years, with a potential of up to 27 years depending upon the interest he receives in his SAFE HARBOR® IRA account.
Summary: The IRA real estate plan enabled Mr. & Mrs. Bennett to purchase their new home without the necessity of selling their existing home first, thereby facilitating a seamless transition to their new home in a different State. By structuring Mr. Bennett’s IRA to support the purchase of his new home, Mr. Bennett was able to benefit from tax free capital gains on the sale of the old home without having to reinvest it back into real estate. The Bennett’s IRA real estate plan has been structured over a 14 year period to be in compliance with Federal IRA regulations. During this time, they are free to turn their property, but it will be to their advantage to continue to apply the income stream generated by Mr. Bennett’s IRA to a real estate purchase. After the 14 year term, Mr. Bennett may choose to redirect his IRA investment, or he can continue to apply it to real estate until either the IRA is fully utilized or the real estate is paid in full. Additionally there are Estate Planning benefits to this IRA real estate plan that are not covered in this brief synopsis.
