The 20 most commonly asked questions about Real Estate IRAs
Who says real estate can be held in an IRA? The IRS.
What type of real estate can be held in an IRA? Single family homes, condos, multi-family, office buildings, apartments and land.
What are the advantages of real estate in an IRA? Portfolio diversification, tax benefits, estate planning, fractional ownership and income.
What types of IRAs can hold real estate? Traditional, Roth, SEP, SIMPLE and IRA Rollovers.
Can there be multiple owners of the same property? Yes, in any percentage.
How is title taken? It must be held in the IRA's name " FBO John or Jane Doe".
Can you borrow money to help finance the purchase? Yes,but it gets a little complicated. One issue is the loan must be a nonrecourse loan. The second issue has to do with UBIT, unrelated business taxable income.
Where can I get more information on UBIT? IRS Publication 598.
Are there restrictions? Yes, it must be held for investment purposes. You or your family cannot live in it. You, your family, your clients may not lease or be located in any part of the building. Other restrictions may apply.
How are expenses handled? They are paid from the IRA.
Can there be multiple owners? Yes, in any multiples. 50/50, 80/20, 30/20/50, etc.
Can I manage the property? No, you will need to appoint a property manager.
Can I use funds outside the IRA to help fund the purchase? Yes, in any combination, 30% from IRA, 20% from CD'S, 50% from a business partner or relative.
"Death and taxes are inevitable", when do I get taxed? You pay based on IRA rules. Traditional, upon distribution. Roth, no taxes on distributions. SEP and SIMPLE Plans, same as traditional IRA.
I rolled a former employer's 401K into a IRA rollover; can I use these funds? Yes, all or part depending on your situation.
My boss has a SEP Plan where I work, can I use my portion of the SEP without disrupting the plan? Yes, you can bring your portion over while your boss and the other employees remain in their existing investments.
If I sell the property in an IRA, do I need to identify a replacement property similar to an exchange? No.
If I sell the property for cash,, will I be taxed? Not unless you withdraw the money from the IRA. Taxes are deferred or exempt depending on the IRA type. There may be UBIT, as mentioned earlier, on the leveraged portion of the sale.
Do I have to invest any proceeds similar to an exchange? No. You can invest now, later or never.
What is the process? Call us about opening a self-directed IRA account. We will help you locate the real estate, facilitate the transaction, determine funding options, and take you through the entire documentation process.
|
