Real Estate in IRA’s
I have someone who wants to put her rental property into her IRA and also purchase a house in her IRA.
Can anyone please advise on best ways to do this and also recommend a company for her to handle this.
She has looked at Gudiant who is recommending her to set up an LLC
Any help would be appreciated.
Thank you.
Permalink Submitted by mk foss on Sat, 2011-10-08 20:31
You can’t “put” a rental property into an IRA. IRAs can take cash contributions only and rollovers from other retirement plans but not assets from any individual. In order to own real property (if it isn’t rolled over from another plan) the IRA must purchase it and a purchase from the IRA owner is a prohibited transaction which would disqualify the IRA.
I’m not sure what kind of house is being contemplated. It couldn’t be a house used by the IRA owner or a relative of the owner – that would be a prohibited transaction. If the house is supposed to be a rental property – there are risks of it becoming disqualified if the tenant is a family member, if the owner or a family member is paid to manage the property, if the owner or the family member pays property taxes or other expenses of the house etc. And then if everything is done correctly there would be Unrelated Business Income Tax if there is a mortgage secured by the property and the rental is profitable.
All of the benefits of real estate ownership – depreciation, favorable tax rates when sold, the ability to avoid tax by exchanging etc – don’t apply to ownership by an IRA. An LLC doesn’t protect the owner entirely from what can go wrong with a real estate investment.
However, it does work for some very disciplined people – particularly if the owner is a Roth IRA. Custodians who handle real estate investments correctly are expensive.
Good luck.