Seven Things You MUST Know About Investing in Real Estate IRAs
Your IRA Cannot Purchase Property Owned by You or a Disqualified Person.
One of the most common questions about real estate IRAs is: “Can my IRA purchase a property that I currently own?”
The answer is always no.
IRS regulations don’t allow transactions that are considered “self-dealing,” and they don’t allow your self-directed IRA to buy property from or sell property to any disqualified person, including yourself.
You Cannot Have “Indirect Benefits” from Property Owned by Your Self-Directed IRA.
Can your self-directed IRA purchase a vacation home for you to occasionally use? Can you rent office space for yourself in a building that your self-directed IRA owns?
The purpose of the IRA is to provide for your retirement at some future date. It’s not intended to benefit you (or any other disqualified person) today. If your IRA engages in a transaction that, in some way, benefits you or a disqualified person, this is considered an “indirect benefit”.
IRA Investments Are Uniquely Titled.
You and your IRA are two separate entities. As such the investment needs to be titled in the name of your IRA—not to you personally. All documents related to the investment must be titled correctly to avoid delays.
The correct title for most real estate IRA investments is:
“Equity Trust Company Custodian FBO (for benefit of) [Your Name] IRA”
Real Estate in an IRA Can be Purchased without 100% Funding from Your IRA.
You can purchase property in more ways than just an outright purchase of the full amount from your account. These other options include using undivided interest and partnering with others. You can also finance an investment with your IRA, but it must be structured properly.
IRA Investments that Use Financing Must Pay UBIT.
Your self-directed IRA can purchase real estate using financing as long as the loan is non- recourse. If you do use financing, unrelated business income tax (UBIT) applies.
Expenses Must Be Paid from Your IRA.
All expenses related to property owned by your self-directed IRA (maintenance, improvements, property taxes, condo association fees, general bills, etc.) must be paid from your IRA.
Real Estate IRA Income Must Return to Your IRA.
All income generated by property owned by your self-directed IRA must be paid into your IRA.