Roth ira real estate at 59 1/2
Hello,
Is there anyway my roth ira can purchase a home, then after I reach 59 ½ legally be able to live in it.
If not, can you suggest any legal way ?
Thx’s
Frank
Hello,
Is there anyway my roth ira can purchase a home, then after I reach 59 ½ legally be able to live in it.
If not, can you suggest any legal way ?
Thx’s
Frank
Permalink Submitted by BruceM on Mon, 2008-05-05 02:27
No
IRA prohibited transactions include selling property to it.
Take a look at Kaye Thomas’s discussion of this at
http://fairmark.com/rothira/real-prohibited.htm
BruceM
Permalink Submitted by Frank on Mon, 2008-05-05 03:23
If that’s the law, so be it. I guess I don’t understand the Tax Law rationale. After I reached 59 1/2 i can take my money out without any tax liability. Why not any other asset ?
Frank
Permalink Submitted by Alan Spross on Mon, 2008-05-05 04:31
Say you are able to successfully avoid a prohibited transaction while holding a rental residence in your Roth IRA, ie. you provide no services to the property, don’t lend money to the Roth, have the residence properly titled to your Roth, don’t let any relatives live in it etc. etc. To this point assume you have avoided all the prohibited transaction pitfalls.
After at least 5 years and you have turned 59.5, you could distribute the property out of your Roth IRA to yourself tax free like any qualified Roth distribution. The title would be changed to you individually, and you would either no longer have a Roth IRA or your Roth would continue to hold only other investments.
This would not be a sale, just a distribution. Only after the property is distributed and re titled can you use it for personal purposes. Your tax basis for the residence is it’s value upon distribution, and your IRA should probably first get a professional appraisal done to establish that value. The IRA custodian will have to report that amount on a 1099R.
If that is what you intend to do, it should be OK.
Permalink Submitted by Frank on Mon, 2008-05-05 16:49
Thank you for your response.
I don’t understand why a tax appraisel is required if the distribution is tax free from a roth.
Permalink Submitted by Alan Spross on Mon, 2008-05-05 17:20
Because the cost basis must be established for the property even if you intend to use it as your main home. The higher this basis, the better for you since when you eventually sell the house, your gain might be greater than the amount sheltered by the Sec 121 exclusion (250,000 if single or 500,000 if joint). You may be able to avoid the cost of a professional appraisal and attempt to establish the market value in another way, but an appraisal is the most accurate and much less likely to be questioned by the IRS several years down the road. Local tax assessor valuations are not good sources of value, as they typically vary considerably from the actual fair market value.
Permalink Submitted by Frank on Mon, 2008-05-05 17:31
Understood.
Again, Thank you.