Real Estate IRA Rules and Regulations

A real estate IRA is a type of self directed IRA that allows you to use the funds you have contributed to your IRA to purchase real estate. While these accounts work much like regular IRAs, there are certain things that you need to know before you begin investing in real estate for your future income needs.

Here is a list of things you need to know about real estate IRAs

Real Estate Owned By You Is Ineligible

There are a number of people who attempt to buy out their own mortgage using the funds in their IRAs. The reason for this is that the interest paid against the loan used to make the purchase will then be deposited directly into the IRA, allowing you to not only own your home outright but to grow your retirement account balance through the receipt of interest payments.

The problem with this approach is that it is not allowed by the IRS. This is known as self-dealing and is prohibited.

You Can’t Enjoy Using Properties Owned By Your IRA

The same principle holds true if the property you are attempting to purchase is not your primary residence, but an investment property. You cannot use those funds to purchase a home that you will utilize personally, for any reason. You also cannot use your real estate IRA funds to purchase or rent a space that you will use for commercial purposes.

The idea behind your real estate IRA is that you make investments in real property that you will be able to benefit from in the future. This means that you can purchase property that you can rent to others and deposit the proceeds into your IRA. However, you cannot purchase a property and then use that property for your own needs today. This is known as an indirect benefit and is prohibited by the IRS.

Your Properties Will Be Titled To Your IRA

Any property that you purchase with funds in your IRA then belong to your IRA and will be titled to your IRA.

You Can Combine Resources to Purchase Properties

Your real estate IRA is very versatile when it comes to making real estate purchases. You can partner with others to make a joint purchase in order to limit the amount of money you have to use out of your IRA. You can also combine sources of money in order to make your purchase. This includes personal cash, money from your IRA and even mortgage loans. Of course, you can also make the purchase in full using funds from your IRA.

Expenses Must Be Paid from Your IRA.

Any expenses associated with the real estate you purchase with IRA funds must be paid from your IRA. This is because the IRA is the owner, which means that it is responsible for maintaining the property as well as paying any taxes, homeowners fees and other associated expenses.

You Must Deposit Earnings Into Your IRA

As mentioned previously, any monies earned by leasing your property must also be returned to your IRA. This is how you grow your account balance and will provide the funds you will need to generate an income after you retire.