IRA investment in Income Real Estate
I understand it is possilbe to buy investment real estate within an IRA. If so, and such real estate generates sufficient rental income, can such rental income be used to satisfy the Required Minimum Distribution…?
Thanks,
Gerry
Permalink Submitted by mk foss on Wed, 2009-03-25 05:30
If there is enough rental income, it could be used to pay RMDs. It is very difficult to have the IRA own real estate.
If the real estate is used by the IRA owner or a relative, that will be a prohibited transaction that can disqualify the IRA.
If the IRA owner or a relative manages the real estate, that will be a prohibited transaction that can disqualify the IRA.
If the IRA owner pays any expenses of the real estate directly, those could be excessive contributions to the IRA subject to penalty.
If the real estate is mortgaged, there is an unrelated income tax that applies to a portion of the profits from the rental.
There are many tax benefits to owning real estate – deductions for property tax and interest and long term capital gain at sale – just to name a few. None of those benefits are available if the real estate is owned by an IRA.
Permalink Submitted by [email protected] on Wed, 2009-03-25 06:29
Thanks much. My question was a result of some info I had read involving purchasing retirement real estate in Mexico within an IRA, then obviously, not using it (by IRA owner), until some later date when it would be distributed from the IRA and available to the owner. I was not interested in the Mexico application, but rather Canada.
However, if the real estate was recreational rental (such as condo, rented to tourists, etc) and managed by professional not related to IRA owner (to comply with that one), and interesting possibility arises — could not the IRA owner use the property the same as the public by paying the regular rates to the manager… and still comply for IRA holding…?
Thanks,
Gerry