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Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3151
Experience:  EA, CEBS - 35 years experience providing financial advice
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I have a tax question about contributing to an IRA. I have

Resolved Question:

I have a tax question about contributing to an IRA. I have a self directed Roth IRA. I want to contribute my 1998 Mazda Protege to the IRA. I can only contribute $5000 to my IRA due to my age. The car is worth $1,000. I am wondering if I can simply "quitclaim" the car to my IRA and have it count as part of my $5,000 contribution. Is there a formal procedure that needs to be followed such as selling the car to my IRA with a bill of sale agreement?
Submitted: 4 years ago.
Category: Tax
Expert:  Bill replied 4 years ago.

Unfortunately, all contributions (other than rollovers) to IRAs must be in cash. Property cannot be contributed as a contribution.


See explanations on page 7 under Individual Retirement Account -

Customer: replied 4 years ago.
Can my IRA buy my Mazda from me and pay me fair market value for it?
Expert:  Bill replied 4 years ago.

Unfortunately, that cannot be done either because it would be considered a prohibited transaction and make the entire IRA immediately subject to income taxes. A prohibited transaction would occur when property is sold or exchanged between the IRA owner and the IRA account.


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Customer: replied 4 years ago.
Thanks for the answer, but I do have one follow up question. What if I set up an IRA owned LLC? Since it is technically a business buying the car and not the IRA directly, does that circumvent the prohibited transaction rules? It is my understanding the IRA LLC must engage in qualified activity or be subject to UBIT taxes, but can it operate as a business without all of the draconian rules of prohibited transactions?
Expert:  Bill replied 4 years ago.

The IRS would still probably consider that a prohibited transaction since the IRA which owns 100% of the LLC is acquiring the car directly from you. An IRA can be the owner of a business and avoid prohibited transactions if done properly. However, if you sell property to a business that the IRA owns more than 50% of then a prohibited transaction will occur.

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