Purchasing real estate with a Self Directed Real Estate IRA has always been permitted by the IRS. Using a Self Directed Real Estate IRA, you will have the ability to purchase raw land, domestic or foreign real estate, residential or commercial property and much more tax-free and without requiring custodian consent!
The Self Directed Real Estate IRA structure involves the establishment of an LLC which is typically formed in the state where the real estate investment will be made. The IRA care of the custodian is the member of the LLC and the IRA holder (you) or a third-party will serve as manager of the LLC. As a result, all income and gains generated by the IRA LLC will flow back to the IRA tax-free.
With a Self-Directed Real Estate IRA LLC, making a real estate investment is as easy as writing a check. As manager of your Self-Directed Real Estate IRA LLC, you have the authority to make real estate investment decisions on behalf of your IRA.
When purchasing real estate with a Self Directed IRA Real Estate LLC, there are a number of tips to keep in mind:
- Make sure that title to the property is held in the name of the Self-Directed IRA Real Estate LLC. Title should not be held in the name of the individual IRA holder or in the name of the custodian.
- The entire purchase price should be paid using IRA funds. In certain circumstances, IRA funds may be used alongside other non-disqualified person assets.
- All expenses, repairs, taxes, improvements, etc should be made using IRA funds. No personal funds should be used.
- If additional funds are required for improvements with respect to the real estate investment, the additional funds should come from added IRA funds from the custodian or from a non-disqualified third-party.
- If financing is needed for a Self Directed Real Estate IRA investment, the financing must be non-recourse and the IRA holder should be aware of the Unrelated Debt Financed Income tax.
- All income/gains or losses should flow from the real estate investment directly to the Self-Directed Real Estate IRA LLC.
- The IRA holder and any disqualified person should be extremely cautious in terms of limiting their involvement in the investment. The IRA holder or any disqualified person should not provide services to the real estate investment, even if the services are being performed for no consideration or compensation. The IRS Treasury Regulations only allow an IRA holder or fiduciary to provide “necessary services” for no consideration. Although the regulations do not describe what is a “necessary service”, fixing a toilet or painting a wall would likely not satisfy that requirement.
- Be aware of the prohibited transaction rules outlined under Internal Revenue Code Section 4975. Accordingly, make sure no disqualified person is involved in the Self Directed IRA Real Estate investment.
Using a Self Directed IRA Real Estate to purchase real estate is easy and extremely tax efficient. To learn more about using a Self Directed IRA Real Estate to make a tax-free real estate investment please contact an IRA expert at 800-472-0646 or visit www.irafinancialgroup.com.