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Self-Directed IRA Rules for Buying Real Estate

14 October, 2017

Self Directed IRA Rules for Buying Real Estate

As we’ve said before countless times, YES! Buying real estate with an IRA is not only permitted, but it can be a smart investment move… Provided you follow the rules. Here is an easy to read breakdown of the main Self-Directed IRA rules for buying property, which can provide an avenue for tax free return on investment and a hedge against inflation, resulting in higher returns over time.

Tax Benefits of Buying Property with an IRA Account

As with any IRA account investment, income earned will be tax deferred until the day you begin to take withdrawals, unless it’s in a Roth IRA, in which case any investment gains accumulate and can be withdrawn tax free as well. On the flip side, you cannot claim deductions, depreciation or loss on your investment properties. Still, savvy investors who buy property such as income-producing vacation homes in popular vacation destinations can accumulate substantial gains and they will all be tax free, which is kind of a big deal.

Self Directed IRA Rules for Buying Real Estate

Basic Rules of Purchasing Real Estate in a Self-Directed IRA 

It’s important to ensure that you purchase property the right way within your retirement accounts in order to avoid tax penalties, since IRA funds are always tax-deferred. Here are some other basic rules to follow that will protect your retirement account alternative investment: 

  • It cannot be mortgaged.
  • Owners are not permitted to perform maintenance.
  • All costs must be paid out of the IRA.
  • All income must be deposited into the IRA.
  • Owners may not live in the dwelling or receive personal benefit.
  • Must be used strictly for investment purposes. 

Also Read: 

5 Easy Steps to Investing in Vacation Home Rentals

4 Big Advantages of the Playa del Carmen Real Estate Market

Are Turnkey Vacation Rentals Right for You?

Self Directed IRA Rules for Buying Real Estate

More About Self-Directed IRA Accounts

Since IRAs have special tax benefits, the account is required to have a custodian (such as a bank or brokerage firm) to keep track of all transactions and report to the IRS on any deposits, withdrawals and year-end balances. Many custodians will allow you to open a Self-Directed IRA and will simply charge a quarterly or annual feel to provide the required reporting. 

Who Should Buy Property with an IRA?

Experienced property investing professionals can help guide any buyer through the simple process of buying property with a retirement account. This is a great strategy for accumulating vacation home rentals or raw land that will appreciate in value, since you must defer withdrawing income or gains until age 50 ½, but inside the IRA it’s perfectly acceptable to roll funds from one project to the next with zero tax consequences. Just make sure you won’t have to sell immediately for some reason, as property is not considered a liquid investment and typically requires at least a little time to sell, even in the world’s most popular tourism destinations.

Have you ever considered buying property with an IRA account? Share your thoughts in the comments!

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Topics: IRA Real Estate Alternative Investments

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