Suppose you purchased 5 acres of pre-developed land today for $40,000

Let's say you paid $40k CASH for the land and 12 years from now a developer contacts you because he wants to buy the land. He offers you $510k per acre and you accept it. The total is $2,040,000 for your land.

If the capital gains tax is a total of 25% we'll say your tax liability is $500,000.

• $2,040,000 - $40,000 (cost) - $500,000 (tax) = $1,500,000 net profit
• $500,000 x .04% = $20,000. gross yearly income lost due to taxes paid

We don't want to give up that $20,000 and we don't have to if we structure our purchase in a self directed IRA. The idea is to defer taxes and to gain interest income from the tax money held in your IRA account.