Real Estate IRA: What Is It
Many people dont know it, but its possible to use your IRA to
purchase real estate, raw land, condos, time shares, provided that the
real estate is not being used for your own personal use, such as a
vacation home or office for your business..
Why do it?
- To shelter capital gains and/or any investment income thrown off by
a rental property. The IRS will allow it but its loaded with rules
and regulations and you cant do this yourself.
- To buy real estate you
may have to find an independent administrator to serve as a trustee or
custodian. That means a middle man since you cannot directly buy real
estate for your IRA. Asset-based administrators charge a percentage of
the total asset value annually.
- These Admin fees vary so shop around.
The Qualifier
- All costs for buying and managing real property in an
IRA must come from the IRA itself or through the annual contribution
- You are not allowed to fund any part of the maintenance or management
from outside your IRA. In other words this is only for IRAs that have
enough assets to buy, manage and maintain a real property. That means
you must have enough cash in the account to handle things like property
taxes, maintenance repairs, property management fees.
- Real
Estate IRA investments probably should be bought outright, as any use of debt
financing might incur the production of unrelated business income tax.
Yes, you should talk to your tax adviser.
- However, you can find
financing. The difficulty is an individual cant personally guarantee a
loan to an IRA, which means you'll have to find a lender willing to
finance on a non-recourse basis. There are Banks and independent
administrators that are set up to work with you. Real estate IRAs are
a niche business and money is available.
However, experts say the best types of real estate deals for an IRA are
cash deals, real estate mutual funds and real estate investment trusts.
- Rental property may be permissible as long as there is no personal use
of the property.
- Keep in mind Real estate must be solely an investment;
the taxpayer or related parties cannot use it....not as a
rental, office or vacation home.
REsourced from www.yourpropertypath.com
You
may republish this article, as long as you do not edit and you agree to
preserve all links to the author and www.yourpropertypath.com
