Real Estate in Your IRA

Purchasing real property with your IRA?

Some Individual Retirement Account (IRA) owners may choose to buy real estate with their IRA. Perhaps the property is intended for a retirement home in the future, as an investment, or for other reasons. Using an IRA to purchase real estate requires advance planning. When done properly, penalties can be avoided. Using one’s IRA to buy investment properties can be a smart planning move to accumulate tax-deferred assets. However, most financial institutions operating as IRA custodians do not permit real estate purchases. When not allowed, the IRA custodian typically provides a 1099-R to the account owner in the amount used to purchase the real estate. This means the withdrawal is taxable and subject to applicable early withdrawal penalties.

First, discuss your goals with a tax attorney and financial planner. Owning real estate in an IRA comes with multiple restrictions. All closing costs must be deducted from the IRA. After closing, all improvements and other expenses must be paid from the retirement account. The account owner and their family members may not use the property—neither as a primary residence or a vacation home. The account owner does not hold the title to the property, instead the IRA, or in many cases, a Limited Liability Company owned by the IRA, is named on the deed.

A tax attorney can review ways of purchasing, holding title, and transferring real estate that do not come with the restrictions noted above.