When investing in real estate with a self-directed IRA, there are a few rules the account holder needs to be aware of so they don’t get penalized. Here are five rules pertaining to purchasing real estate through an IRA:
- Cannot be Owned or Rented by Disqualified Persons
An IRA cannot purchase a property already owned by the account holder. It is also prohibited from purchasing property or selling property to disqualified persons. A Disqualified Persons cannot rent the property from the IRA, this created a prohibited transaction. Visit the Mountain West IRA website to learn more about who is considered a disqualified person.
- No Indirect Benefits
The account owner cannot use the property the IRA has purchased for a vacation home or as an office space for themselves. Investments are for benefits at a later date, not right now. If the property in some way benefits the account holder or a disqualified person, that is considered an “indirect benefit.”
Account holders need to view their IRA as a separate entity. As such, investments are titled in the name of the IRA, not the investor themselves. Properly titled investments make the transaction clear and easy to follow when purchasing real estate in an IRA.
- No Out-of-Pocket Expenses
Every expense related to the property in question must be paid for through the IRA. This includes improvements, taxes, home owner’s association fees, maintenance, and more. Paying for such items outside of the IRA could lead to penalties.
- Buying Real Estate
With a self-directed IRA, the investor does not have to purchase the property outright for the full amount. Options like partnering with others or using a mortgage are also available.
For more details on the process of investing in real estate with a self-directed IRA, visit the Mountain West IRA website.