Did you know that you can buy an investment property with your IRA? Several years ago, I took a class that sounded interesting. The subject was about creative ways to finance real estate investments. Some involve never paying capital gains to the IRS. I am going out on a limb here, but I bet that like me, you probably don’t like paying a lot of income tax. I totally understand about paying your fair share, and I am not suggesting stiffing the IRS. But what I have found out through selling real estate for over 2 decades is that some laws are designed for the rich to just get richer. I have been involved in representing clients on sophisticated transactions that are layered with tax benefits. Unless you have a financial advisor, a tax attorney and an accountant you are probably not aware that there are other avenues to acquire real estate that do not involve getting a mortgage or paying cash.
One of those methods is using your self-directed IRA to purchase an investment property. Depending on what kind of IRA you have, you either will not pay tax on the profit until you retire or not at all. I am not an attorney nor am I giving you financial advice. I can just tell you what I have seen with clients I have worked with and what I have personally done (that is my disclaimer).
Here are the basic rules to follow to use your self-directed IRA to buy an investment property. You will want to check with an accountant or tax attorney for the tax code. This is just the basics for understanding how your IRA works in a real estate investment transaction.
- It has to be an investment property. You cannot use the property for personal use and it cannot be your second home.
- Your IRA cannot buy a property you already own.
- All the expenses are paid through the IRA
- All the proceeds flow back into the IRA
- Your IRA doesn’t have to fund the entire purchase. For example, my IRA and my husband’s partnered to make an investment purchase.
- There has to be a company that sets up the IRA and handles the transaction and distribution.
- This has to be an arm’s length transaction. Meaning, do not commingle your personal money with your IRA investment.
This type of investing may not be for everyone. However, if you are looking for a way to personally take control of your retirement account, this is one option to consider.
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