Can I Own Real Estate in my IRA?

January 24, 2020, by John Norris

The quick answer is: yes, you can hold real estate in an IRA. However, a better answer is: yeah, but there is a catch, if not catches.

First, your IRA cannot buy property from or sell property to you or anyone the IRS deems a disqualified person or entity. The latter would include your direct lineal relatives, a service provider who works for you, and any other legal entity majority-owned by you, a disqualified other, or a business partner which owns 10% or more of said entity. Basically, the IRS doesn’t want any self-dealing.

Second, you can’t receive any benefit from or provide any to the real estate investment. For instance, you can’t buy a vacation property you occasionally use, even if you rent it to others. That means no personal use at all, none, not even a night or an off weekend. Further, the same goes for any of those disqualified folks in the above paragraph. Also, you can’t rent space in a building your IRA owns. Essentially, you and the real estate in your IRA must always be at arm’s length, if not longer.

Third, any real estate in your IRA MUST be uniquely titled. As an example: Oakworth Capital Bank Custodian FBO Mr. John Smith IRA.

Fourth, any and all transactions involving the property must be done through the IRA and NOT through the individual. This includes ALL income and ALL expenses. You can’t do any work on the property, and can’t claim any breaks or deprecation on your personal tax return. The IRA owner and the real estate investment must be completely separated.

Fifth, and this is where the rubber meets the road, just because the IRS allows real estate in an IRA it doesn’t mean your custodian or service provider does. Many do not, particularly if they are acting as ‘trustee’ or as money manager of the IRA. As a result, IF you want to buy direct real estate in an IRA, you will more than likely have to open a self-directed IRA with an arm’s-length custodian, and adhere to the IRS guidelines yourself. Be forewarned: if you don’t follow the IRS rules correctly, you run the risk of turning your entire IRA into taxable income.

In the end, most people opt not to purchase real estate in their IRA because it is kind of a pain in the neck, and more expensive than they initially thought. Further, if the truth be told, a lot of folks really just want to use their IRA to purchase a second home of some variety, and that is a huge no-no.