You may use your Qualified Retirement Plan or your IRA to purchase investment single family and multi-unit homes, apartment buildings, co-ops, condominiums, commercial property, improved or unimproved land, whether it's leveraged or un-leveraged.
When purchased, these properties become assets of your Plan or account. Properties may be purchased for investment purposes only; there are some prohibited transactions -- IRA Plans that engage in these prohibited transactions may lose their tax-protected status. Prohibited transactions include:
- You may not personally own property which you intend to purchase with Plan funds and you must ensure that your intended purchase is not a prohibited transaction
- Neither you, your spouse, nor your family members (other than siblings) may have owned the property prior to its purchase by your Plan
- Neither you nor your family members (other than siblings) may live in or lease the property while it's in your Plan
- Your business may not lease or be located in or on any part of the property while it's in your Plan
- You may not receive any property as a distribution from your Plan as a retirement benefit
- You may not personally guarantee any loan used to purchase assets for your Plan.
- Neither the beneficial owner of an IRA, nor a company more than 50% owned by the beneficial owner may manage the property.
- Sweat equity is not allowed
Steps to making an offer from your IRA:
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Make the offer, preferably in the name of your IRA.
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Open escrow and arrange for title insurance
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The Administrator of your Self-Directed IRA will The Buy Direction Letter for Real Estate will let us know who to work with to complete the purchase on behalf of your IRA, and the Lender information so that loan payments can be made
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All existing or new renters or lessors need to be instructed to make payments to your IRA at your administrator's address.
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Payments for mortgage, utilities and other expenses will be made on your IRA's behalf by your administrator.
Because the property is debt financed (mortgaged), the portion financed may be subject to Unrelated Debt Financed Income Tax.
Mortgage interest is not deductible for IRA-owned real estate.
While in some cases, you may receive a fee for managing the assets in your IRA, this does not include include property management. To assure separation of assets, you may not personally manage real or personal property owned by your IRA.... Managing Assets means managing your IRA portfolio, not managing the assets of the portfolio. All of the income and expenses are for the benefit of the account. This includes all property rental or lease income, taxes, property management and repairs. Invoices for expenses are paid on client approval. The record-keeping and administration expenses may be paid either directly from separate funds or through the Plan, and may be tax deductible.
If title is vested in individual account holder names, it may not be subsequently sold to the tax-deferred or tax-free account.
While fractional interests in real property may be purchased or sold, such interests may not be bought from the beneficial owner of the Plan or IRA or members of their family or business, except siblings.IRC Section 4975 - provides overview of prohibited transactions www.formilab.ch/ustax/www/t26-D-43-4975.html
For more information view the website of www.iraplussouthwest.com
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