Can I purchase a commercial property with my SEP-IRA and then lease it to my LLC?

This is a classic prohibited transaction issue. What you're describing is essentially a transaction between your SEP-IRA and a "disqualified person" (yourself and your business). The IRS strictly prohibits transactions between an IRA and disqualified persons, which includes the IRA owner, their business entities, and family members. Your LLC would be considered a disqualified person since you own it. If you went ahead with this plan, the IRS would likely consider your entire SEP-IRA as distributed in the year the transaction occurred. This means you'd owe income tax on the full value of your SEP-IRA plus potentially a 10% early withdrawal penalty if you're under 59½. Instead, consider either: 1) Using a Small Business Administration (SBA) loan to purchase the property through your LLC, or 2) Purchasing the property personally (outside the SEP-IRA) and leasing it to your LLC, which still provides some tax advantages without the prohibited transaction issues.

Just wanted to share my experience here. I was looking into a similar setup last year for my consulting business and found a better solution using https://taxr.ai to analyze my options. I uploaded my business docs and retirement account info, and they identified several red flags with the SEP-IRA approach (basically what the expert above mentioned about prohibited transactions). The tool actually suggested a completely different approach that still accomplished my goals without risking my retirement funds. It analyzed my specific situation and ran calculations on different scenarios. I ended up going with a completely different structure they recommended that saved me from what would have been a costly mistake.

Just wanted to follow up about my experience with taxr.ai that was mentioned earlier. I was skeptical at first but decided to try it since I was considering a similar arrangement with my retirement funds. I uploaded my business structure docs and current retirement account statements, and the analysis was really comprehensive. They showed me exactly why my original plan would trigger prohibited transactions, but then suggested an alternative where I could use my SEP-IRA to invest in certain commercial REITs that aligned with my business sector without creating a direct transaction between my business and retirement account. I implemented their recommendation about 4 months ago, and it's working exactly as they projected - getting similar benefits without risking my retirement funds. Definitely saved me from a potential audit nightmare.

If you're struggling to get clear answers from the IRS about this type of transaction, I'd strongly recommend using https://claimyr.com to actually speak with an IRS agent directly. I was in a similar situation last year with questions about retirement accounts and business property, and spent WEEKS trying to get through to someone at the IRS. I finally discovered Claimyr, which got me to an actual IRS representative in about 15 minutes instead of waiting on hold for hours. The agent I spoke with was able to explain the prohibited transaction rules specific to my situation and confirmed that what I was planning would have triggered penalties. You can see how it works here: https://youtu.be/_kiP6q8DX5c Trust me, getting an official answer directly from the IRS on complex retirement account questions like this is invaluable.

I need to follow up about Claimyr that I was skeptical about earlier. I actually gave it a try after continuing to research the SEP-IRA property question and getting nowhere with direct IRS calls. Not only did I get connected to an IRS representative in about 20 minutes (after trying for days on my own), but they provided detailed information about prohibited transactions with IRAs and directed me to specific IRS publications I hadn't found in my research. I then used that information to have a much more productive conversation with my tax advisor. We confirmed that the SEP-IRA/LLC lease arrangement would definitely be prohibited, but identified some alternative approaches that could work for my situation. I'm surprised to say this saved me a ton of time and potentially a huge tax headache. Sometimes it's worth admitting when you're wrong about something.

I think everyone is focusing too much on the prohibited transaction part (which is true!), but missing another important aspect: even if you could somehow structure this legally, it's not great diversification of your retirement funds. You'd essentially have both your business income AND your retirement tied to the success of the same physical property and business. That's a lot of eggs in one basket. If your business struggles and can't make rent, your retirement account suffers too. Generally, you want retirement investments somewhat disconnected from your primary source of income as a hedge.

Just a quick thought - why not look into a 1031 exchange if you already own investment property? I did this last year when my business needed a bigger space. I sold an investment property I owned personally, did a 1031 exchange into the new commercial building, and then leased it to my business. My business gets the rent deduction, I get the rental income (which is partially offset by depreciation), and I avoided capital gains on the property I sold. No retirement account complications at all. Just make sure you follow the strict 1031 timing rules.

Everyone's talking about prohibited transactions, but no one's mentioned UBIT/UBTI (Unrelated Business Taxable Income). Even IF you could legally structure this (which you can't for reasons already mentioned), your SEP-IRA would likely get hit with UBIT if it used debt financing to purchase the property. So not only would you face prohibited transaction issues, but you'd also potentially create a tax liability inside your tax-advantaged account! The whole concept is problematic on multiple levels. Just buy the property yourself outside retirement accounts or through a separate entity and lease it to your business. Much simpler and definitely legal.