Real Estate in IRA’s
Have talked to many TPA’s and they tell me they can put real estate in IRA’s or P/s plans. Am wondering in the case of the IRA if you have a rental house in the IRA:
1. Who pays for the up keep and cost etc.
2. How do you calculate the RMD, and it appears one will have to do a valuation each year.
Permalink Submitted by Alan - IRA critic on Thu, 2019-05-02 19:53
All costs related to the rental including insurance, loan payments, property taxes, repairs, appraisals, etc must be paid from the IRA balance. Therefore, this account needs liquidity since eventually there will be unexpected expenses. Repair work must be contracted out, the IRA owner cannot do them. The self directed custodian needs to determine a year end fair market value of the property, through appraisal or other means. This is reported to the IRA owner on Form 5498 or a statement and to the IRS of Form 5498. Once RMDs begin, if there are other owned IRAs, the RMD can be aggregated with these other accounts, and can be withdrawn from the other account. But if there is no other account, the liquidity of the real estate IRA must be increased to meet the RMD. Finally, you must be very careful to avoid prohibited transactions, such as renting to certain relatives or moving into the house. Some self directed custodians will offer guidelines to help avoid the dreaded prohibited transaction.