Thinking of opening a real estate IRA? Get the facts first.
There are rules that apply when it comes to holding real estate in IRA accounts.
Those rules were NOT meant to be broken.
The IRS takes them very seriously.
The relevant IRS publications include 560, 590, 575, 529, 550, and 598.
Any or all of those publications could apply to you and it's a good idea to check them out at some point.
I can give you the highlights that apply specifically to a real estate IRA.
#1 Prohibited Transactions You are not allowed to borrow money from your account, nor can you loan money to it.
This is relevant when it comes to holding real estate in IRA accounts, because you must be sure to keep an un-invested cash balance, in the account, in order to pay for expenses related to the property.
You see, all expenses related to the property must come from the account, just as all profits must be returned to it.
And, you can not be directly involved in the transaction.
The account is a separate legal entity and the real estate in IRA accounts is titled differently.
In order to keep it legal and keep the IRS off your back, you should make sure that all of the paperwork is handled correctly.
The right custodian can help with that.
#2 Financing and UBIT You can get financing to fund a real estate IRA, as long as only the property, not the account itself, is used as collateral.
But, if you do get financing, any income or profits will be subject to unrelated business income tax or UBIT.
That's why most of us recommend "cash" deals.
In other words, you should make sure that you only look for properties that you have the "cash-on-hand" to purchase.
You may be able to avoid UBIT, if you band with other account holders or form a LLC within the account to purchase the property.
This is sometimes a good choice when holding large amounts of real estate in IRA accounts, with the expectation that the value will increase greatly over time or in a few short years.
#3 Self-Dealing When you or your close family members are directly involved in a transaction, it is considered self-dealing.
A real estate IRA can only be used for investment property, not to buy property for your family's or your personal use.
In order to avoid self-dealing all together, you can take a "hands-off" approach by using a management team.
There are some highly experienced teams out there that make the whole process a lot easier.
They also help communities and people in general.
#4 The Bottom Line The bottom line is that holding real estate in IRA accounts is becoming an increasingly popular choice and you can get in on it relatively easily.
But, you need to make sure that you have investigated all of your options and have the information that you need.
A real estate IRA can be highly profitable if you choose the right program.
#5 There is A Hidden Real Estate Market Out There There is a hidden real estate market that many savvy real estate IRA owners are using to rake in huge profits.
It includes properties in good locations, with qualified renters lined up waiting to get in, with guaranteed payments for the first year.
It's not a bad way to go if you know where to look.
There are rules that apply when it comes to holding real estate in IRA accounts.
Those rules were NOT meant to be broken.
The IRS takes them very seriously.
The relevant IRS publications include 560, 590, 575, 529, 550, and 598.
Any or all of those publications could apply to you and it's a good idea to check them out at some point.
I can give you the highlights that apply specifically to a real estate IRA.
#1 Prohibited Transactions You are not allowed to borrow money from your account, nor can you loan money to it.
This is relevant when it comes to holding real estate in IRA accounts, because you must be sure to keep an un-invested cash balance, in the account, in order to pay for expenses related to the property.
You see, all expenses related to the property must come from the account, just as all profits must be returned to it.
And, you can not be directly involved in the transaction.
The account is a separate legal entity and the real estate in IRA accounts is titled differently.
In order to keep it legal and keep the IRS off your back, you should make sure that all of the paperwork is handled correctly.
The right custodian can help with that.
#2 Financing and UBIT You can get financing to fund a real estate IRA, as long as only the property, not the account itself, is used as collateral.
But, if you do get financing, any income or profits will be subject to unrelated business income tax or UBIT.
That's why most of us recommend "cash" deals.
In other words, you should make sure that you only look for properties that you have the "cash-on-hand" to purchase.
You may be able to avoid UBIT, if you band with other account holders or form a LLC within the account to purchase the property.
This is sometimes a good choice when holding large amounts of real estate in IRA accounts, with the expectation that the value will increase greatly over time or in a few short years.
#3 Self-Dealing When you or your close family members are directly involved in a transaction, it is considered self-dealing.
A real estate IRA can only be used for investment property, not to buy property for your family's or your personal use.
In order to avoid self-dealing all together, you can take a "hands-off" approach by using a management team.
There are some highly experienced teams out there that make the whole process a lot easier.
They also help communities and people in general.
#4 The Bottom Line The bottom line is that holding real estate in IRA accounts is becoming an increasingly popular choice and you can get in on it relatively easily.
But, you need to make sure that you have investigated all of your options and have the information that you need.
A real estate IRA can be highly profitable if you choose the right program.
#5 There is A Hidden Real Estate Market Out There There is a hidden real estate market that many savvy real estate IRA owners are using to rake in huge profits.
It includes properties in good locations, with qualified renters lined up waiting to get in, with guaranteed payments for the first year.
It's not a bad way to go if you know where to look.
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