7 Things You MUST Know About Investing in Real Estate IRAs
Updated: Sep 30, 2019
REAL ESTATE IRA RULES
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.
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? No. 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 real estate IRA engages in a transaction that, in some way, benefits you or a disqualified person, this is considered an "indirect benefit".
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 [for benefit of] (FBO) [Your Name] 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.
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.
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.
All income generated by property owned by your self-directed IRA must be paid into your IRA.
Please Note: This information presented above for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with legal, tax, and accounting professionals.