Using Your IRA to Invest in Real Estate
Posted on: October 30, 2007
Your self-directed retirement accounts can own real estate. It’s a complicated subject so be sure to talk with your competent advisors before you take action. You need to establish a self-directed retirement account with a company that specializes in real estate IRAs. You can roll over an existing account or establish a new one. Most companies that handle retirement accounts are not geared up to handle real estate so be sure you have a company that is well equipped to handle real estate. Some companies have no incentive to inform you that real estate is an alternative investment choice. Get good professional advice before taking any action.
Your real estate IRA is able to buy and sell real estate including raw land, commercial properties, rental properties, condos, fixers, etc. It is your self directed IRA that buys, owns, and sells the real estate, not you personally. If you rent the property that is owned by your real estate IRA, the rental income must be paid to your IRA. All the expenses of operating and renting the property must also flow through the IRA. Your real estate IRA can buy a partial interest in a property if it does not have enough money to buy 100% of the property; it can be a partner and own fractional interest.
Your real estate IRA cannot buy or sell a property that you, your spouse, your business, or certain family members own. Your business cannot lease the property from your IRA, as well as, use or occupy the property. You should also not use a rental property that provides tax shelter from depreciation deductions because the tax shelter would go to waste in your retirement account.
There is a limit on how much you can contribute to your retirement account; however there is NO LIMIT on how much the account can earn!! When your real estate IRA makes a profit it will compound in your IRA tax-deferred, or tax free depending on what type of IRA you have.
Please feel free to comment with questions or contact me. I can put you in touch with professionals that specialize in this type of transaction.
Written by Heidi Beylund, ABR & Realtor® for PortlandRealEstate.com.