Real Estate value increase in IRA and RMDs
If I buy a rental property in my TIRA (for cash, to keep it simple) then improve the property over the years with my own sweat equity (and any cash required from within the IRA), I would assume the annual year end evaluation of this property in the IRA for RMD purposes would include the initial purchase cost, but NOT any general real estate market value increase, nor any cash invested in the property (as it was already in the IRA). I would hope that my sweat equity would not show up anywhere in the evaluation. If this is the case, I could grow the value of the IRA without growing the RMDs.
Will this work…?
Thanks..!
Permalink Submitted by Dave Owens on Sun, 2012-03-11 15:15
Annually you are required to report your real estate value to the administrator of your account. You must use a fair market value this will include any improvements to the property. Every administrator has different requirements for what will qualify for valuations. They are all similar but different administrators have different governing authorities. You will need to check with your administrator on how they want a valuation. Some will allow a property appraiser value and some will require a full appraisal. The requirements can also change if it is a tax event like an RMD or distribution.
Regarding sweat equity, please review the rules, the IRS will allow mininimal sweat equity. If you are doing all the work to repair a rental this can be considered a contribution to your account for the value of the work.
This is a detailed subject that I have only scratched the surface. If you would like to call me feel free.
Dave OWens, CPA, CES
239-333-1031 x203
Permalink Submitted by [email protected] on Sun, 2012-03-11 19:36
Thanks Dale. Just the hassle and expense of having to get an annual appraisal is enough to abandon the idea of getting real estate into my IRA…
Permalink Submitted by Alan Spross on Sun, 2012-03-11 20:12
With respect to doing work yourself, you would have to hire out any repairs and maintenance. Doing the work yourself would constitute a prohibited transaction that would result in the disqualification of the IRA holding the property. The entire value of that IRA would be taxable and subject to penalty if under 59.5.