- The property and the contract to purchase must be titled in the name of your IRA
- Many IRA real estate investors use an IRA/LLC to better gain control of the transaction and investments.
- Any mortgage or loan obtained for IRA-owned real estate must be non-recourse and may cause UDFI tax on profits from debt.
- IRA-owned real estate must be held for investment and cannot be used by the IRA owner or their disqualified family.
IRC § 4975 (c)(1)(B). A disqualified person (e.g. IRA owner) may not extend credit or guarantee a loan for their IRA’s investments.
IRC § 4975(c)(1)(C). While it is permissible to administer the investment, it is generally viewed impermissible to physically work on investment assets (such as rental real estate) since such actions can constitute a per se prohibited or self-dealing prohibited transaction.
IRC § 4975(e)(2)G). For example, any lease to a company that is owned 50%
The most common asset class for self-directed IRA accounts is real estate. Real estate investments for self-directed IRAs come in various forms from simple single-family rentals owned 100% by the IRA to LLC or LP investment partnerships with multiple investors in larger commercial or multi-family properties.
Given the changes in federal securities laws that now allow investment sponsors and real estate syndicators to raise capital more easily, many self-directed IRA investors have considered investing their IRAs into these offerings.
When IRA-owned property is held for rent, the management of the rental property must be structured such that rental income is received by the IRA and expenses are paid by the IRA.
The IRA owner and other disqualified persons (e.g. IRA owner, spouse, etc.) cannot personally be the “middleman” by paying expenses personally or by collecting the rent in their personal account and then forwarding the funds to the IRA. There are essentially three different methods whereby the IRA may be structured to properly collect rent and pay expenses.