Should a self-directed IRA hold Michigan property directly or through an LLC?

A West Michigan buyer looking at a property for a self-directed IRA often faces the same question in the first week: should the account buy the property directly, or should the IRA own a Michigan LLC that buys it? Both are workable, and both are done. The problem is that most buyers hear hold it in an LLC and add a company without asking what that company does to the account, the title, the annual paperwork, and the tax picture. That is a structure decision, and it belongs before the deed is signed, not after.

Two frames matter here. One is the account's boundary: what may and may not touch the asset without turning a retirement purchase into a prohibited transaction. The other is the Michigan record: who legally owns the parcel, who files what with the state, and who pays for it. Most of the mistakes people make are in the first frame, and the second frame is where the paperwork has to line up with it.

Direct ownership is the simple path

The IRA can own the property outright, vested in the account exactly the way the custodian's language requires. That is the simplest structure: one owner, one set of account records, and a deed and title that agree with the account. The property's income goes to the account, its expenses come out of the account, and the owner stays on the outside of it.

Direct ownership keeps the prohibited-transaction line easy to see. The account buys it, the account holds it, the account receives every dollar of income, and no one in the owner's circle has an interest in it. When the structure is flat, it is much harder to accidentally mix the owner in.

What a Michigan LLC actually is

A limited liability company is a separate Michigan legal entity created under the Michigan Limited Liability Companies Act, chapter 450, article 4 of the Michigan Compiled Laws, starting at MCL 450.4101. A single-member LLC can have exactly one member, and that member does not have to be a person: it can be the IRA.

When the IRA is the sole member of the LLC and the LLC owns the parcel, the account effectively owns the property through the company. The deed names the LLC, the LLC's one owner is the account, and the account's economics run through the LLC. Some custodians and accountants use this structure deliberately, and it is a legitimate arrangement.

It is not, however, a requirement. Most IRA real estate in Michigan is held directly, with no LLC at all. An LLC adds a layer: a separate record, an operating agreement, an EIN, a registered agent, and an annual report. That layer is worth having only if the account and the owner both understand what it does and who may not touch it.

The structure that creates the problem

The structure to be careful with is a personal LLC: a company the owner forms in their own name, and then points the IRA at. Or the IRA buys property, and later the owner moves it into their own company. Either way, the owner now holds or controls an entity that touches the account's asset.

That is a red flag because a business the owner owns or controls sits inside the disqualified-person circle that the prohibited-transaction rules are built around. A plan dealing with its own controlled entity is exactly the kind of transaction those rules exist to block, and fair pricing does not cure it. This site's article on prohibited transactions covers that rule in detail; the point here is that the structure has to keep the account and the owner's circle separate.

The test is short. If the IRA is the 100% member and no one in the owner's circle has a stake, control, or signature authority, the LLC can be a valid structure. If the owner is a member or manager, or can direct the LLC for a personal benefit, stop and ask the custodian, CPA, and attorney before anything is filed.

What the LLC changes on the Michigan side

An LLC is a separate state record, and that changes the closing file. The company is formed by filing Articles of Organization with the Michigan Department of Licensing and Regulatory Affairs, which houses the Secretary of State's business filings. The filing names the company, lists the registered agent, and establishes the entity in the state's records.

The registered agent has to be Michigan-qualified, and it is a recurring cost. The LLC also files an annual report with the LARA Secretary of State each year, generally due by April 15 under MCL 450.4404. Both of those are account obligations: the account pays for the registered agent and processes the annual report. The owner does not settle them personally.

• Articles of Organization: company name, LLC number, formation date, and registered agent
• The IRA (or its custodian's designated entity) as the sole member, with no owner or family interest
• An operating agreement drafted so the owner has no member, manager, or signature role
• The annual-report obligation, its April deadline, and who the account designates to file it
• An EIN and the tax setup for the entity and the account
• How the title commitment and the deed will vest the interest in the intended owner

Title is where a structure mistake becomes a title defect. If the deed vests in the LLC but the account is supposed to own the property directly, or if the LLC's membership is misstated, the title does not match the intended structure. The title company, the custodian's vesting language, and the recorded documents all have to name the same owner, and a mismatch is something to resolve before the offer deadline, not after closing.

Keeping the account in control of the structure

Whether the property is held directly or through an LLC, the same account discipline applies. The account buys the asset, the account pays every expense, the account receives every dollar of income, and the owner does not personally use the property or take a benefit from it while the account holds it.

For the LLC, that discipline takes one more step: the owner is not a member and is not a manager, and no one in the owner's circle signs the company's documents for a personal reason. If the account needs a manager or a service provider for the LLC, that has to be an arm's-length arrangement that the custodian, CPA, and attorney have reviewed, not a convenience the owner arranges.

The money flow follows the same rule. Formation fees, the registered agent, the annual report, and any LLC cost are account expenses that move through the custodian. The owner does not cover them from a personal account, and the owner does not receive any of the LLC's income. The structure has to keep the account on one side of the line and the owner on the other.

The tax layer: unrelated business income and Form 990-T

An IRA is treated as an exempt organization under the federal unrelated-business-income rules. If the property produces unrelated business taxable income, the account may owe tax on it and file Form 990-T, the Exempt Organization Business Income Tax Return. The most common trigger in a real estate context is debt-financed income under IRC 514, which this site's article on non-recourse financing covers.

The IRS sets a filing threshold for IRAs based on gross unrelated business taxable income, commonly $600. Whether a particular property's income is taxable, how much, and who files are questions for the CPA, not for the purchase decision. The structure choice can change the tax picture, so the CPA should look at both the direct structure and the LLC structure before the offer is written.

A single-member LLC is generally treated as a disregarded entity for federal income tax, so the account's tax picture usually does not multiply just because a company is added. But that is a general rule, and the specific answer for one property and one account belongs to the CPA.

Decide the structure before the offer

The structure decision drives the whole closing. It sets the custodian's vesting, the title commitment, the deed, the EIN, the LLC formation, the registered agent, the annual-report calendar, and the CPA's tax plan. If it is decided late, the whole timeline shifts.

Write the structure into the offer timeline. Forming an LLC, vesting title correctly, and getting the custodian's sign-off take longer than a standard inspection, so the offer needs real time for it. If the structure is still an open question when the inspection period ends, that is a problem the offer should already have solved.

• Ask the custodian whether it supports an IRA-owned LLC and how it will vest it
• Have Michigan counsel draft the operating agreement so the owner holds no member or manager interest
• Confirm the registered agent and the annual-report process are handled and paid by the account
• Confirm the title commitment and the deed will name the intended owner, the IRA or the LLC
• Have the CPA confirm the unrelated-business-income and Form 990-T implications of the chosen structure
• Budget for the LLC's formation and its recurring annual costs

This article is educational, not legal, tax, financial, retirement-plan, or investment advice. No property, entity structure, or strategy is approved or endorsed by the IRS. Have your own self-directed IRA custodian, CPA, Michigan attorney, title professional, and the LLC's relevant professionals review the account, the structure, and the transaction before taking action.

What Rennie can coordinate

Primary sources for the public-rule portions of this review are the Michigan Limited Liability Companies Act, MCL 450.4101 et seq., the annual-report requirement at MCL 450.4404, the Michigan Department of Licensing and Regulatory Affairs and its Secretary of State business filings, the federal unrelated-business-income rules and Form 990-T, and the custodian's own vesting procedures. Those describe the framework. The answer for one property and one account comes from the recorded documents and the buyer's own qualified professionals.

Rennie can help identify West Michigan property and organize the real estate side of the review: confirming the parcel, coordinating how the title will vest, and flagging which structure and title questions are worth a closer look before the offer. The legal structure, the tax treatment, and the retirement-account decisions stay with the buyer's own attorney, custodian, and CPA.