The IRS has always permitted an IRA to purchase or hold real estate or raw land. Making a real estate IRA investment is as simple as writing a check.
The Internal Revenue Code does not describe what an IRA can invest in, only what it cannot invest in. Internal Revenue Code Sections 408 & 4975 prohibits Disqualified Persons from engaging in certain type of transactions. The purpose of these rules is to encourage the use of IRAs for accumulation of retirement savings and to prohibit those in control of IRAs from taking advantage of the tax benefits for their personal account.
With a self-directed real estate IRA LLC, the IRA holder would serve as the manager of the Self-Directed IRA LLC giving that person the authority to make investment decisions on behalf of the IRA. One major advantage of purchasing real estate with a Self-Directed IRA is that all gains are tax-deferred until a distribution is taken (Traditional IRA distributions are not required until the IRA owner turns 70 1/2). In the case of a Self-Directed Roth IRA LLC, all gains are tax-free.
A self-directed IRA LLC allows an IRA holder to make a diverse selection of real estate IRA investments, including land, commercial or residential property, domestic or foreign land or property, mortgage loans, tax liens, tax deeds, and much more. Using a self-directed IRA is one of the most popular vehicles for making real estate IRA investments.
For example, if an IRA holder purchased a piece of property with your Self-Directed IRA for $100,000 and later sold the property for $200,000, the $100,000 of gain would be tax-deferred. Whereas, if the IRA holder purchased the property using personal funds (non-retirement funds), the gain would be subject to federal income taxes and in most cases state income tax.
To learn more about the real estate IRA investment rules, please contact an IRA expert at 800-472-0646.