How to Add Real Estate to My IRA

Posted on July 28, 2014 by

There’s nothing out there that quite offers the unique advantages of direct investment in real estate:

  • Tangible value
  • Potential for substantial income from rent
  • Potential for capital appreciation
  • Effective safeguard against inflation
  • Extensive availability of leverage
  • Ease of borrowing against the asset for other investing
  • Effective hedge even against economic collapse


The good news is, though, is that it’s quite easy to hold real estate – actual, tangible real estate – within your IRA, provided you adhere to a few basic rules.

Why might you consider real estate within an IRA?

  • Deferral of income tax on rental income
  • Deferral of capital gains taxes
  • Potential for tax-free income and tax-free growth in the case of Roth IRAs
  • Substantial protection against bankruptcy. Federal law protects up to $1 million in IRA assets against creditors, and some jurisdictions provide even more.

You can even employ leverage within your real estate IRA. Many people are unaware that IRAs can, indeed, borrow money in order to invest in real estate or meet other liquidity needs. Generally, you can borrow up to 65 percent or so of your real estate’s value provided the mortgage or loan meets the following criteria:

  • The loan must be on a non-recourse basis. That is, the creditor can not secure the loan with anything outside of the IRA itself. You cannot pledge assets other than those inside the IRA as collateral.
  • The loan cannot come from you, your spouse, your ascendants or descendants, or their spouses.
  • The loan cannot come from any entities any of these individuals control.
  • The loan cannot come from a fiduciary advising you on the IRA, his or her spouse, nor any entity they control.

Self-Directed IRAs

The real estate IRA is a subset of a concept called the self-directed IRA. This simply means that the IRA owner takes on much more control of how the assets in the IRA get used. Rather than delegating control to a fund manager, for example, the owner of a self-directed IRA account personally decides what properties to buy and at what price, what to rent them for and whom to rent them to (or what property management firm will take care of that for the owner), when and how to make repairs and withdraw rental income or capital gains, as appropriate.

A self-directed IRA such as a real estate IRA puts you, not Wall Street, in control.

The IRS enforces a few simple rules designed to prevent self-dealing and A few simple rules to keep in mind:

  • You cannot mix personal and IRA assets.
  • You cannot use the property for your personal convenience.
  • You cannot direct the real estate IRA to use a company you own for maintenance or property management services.
  • You cannot rent the property to yourself, your spouse, ascendants or descendants or their spouses.
  • You cannot direct the IRA to hire any of the above to provide goods or services, nor can you direct the IRA to hire any entities the above individuals control.

You can, however, borrow against your property using a non-recourse loan in order to fund additional acquisitions.

You can rent a property held within a real estate Roth IRA for generally tax-free income (however some income may be taxable under unrelated debt income tax rules if you have borrowed money from outside the IRA to purchase the property. See IRS Publication 598 for more information on unrelated debt financed property and income tax).

You can defer taxes on capital gains on property held within real estate IRAs.

Want to learn more? Simply attend one of our free online seminars, at no obligation and no cost to you. We offer several of them per week, where we’ll cover all the basics. Select one and sign up here.

Jim HittJim Hitt is the Chief Executive Officer of American IRA and he has been committed to all aspects of investing for more than 30 years, using self-directed IRAs for his own investments since 1982. Jim’s forte is the financing and acquisition of real estate, private offerings, mortgage lending, business’s, joint ventures, partnerships and limited liability companies using creative techniques.

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