Self-directed IRA for Real Estate

Frequently Asked Questions



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What is a self-directed IRA?

A self-directed IRA is a term that describes an Individual Retirement Account in which the assets are controlled or directed by the taxpayer.

Can I invest in real estate with IRA funds?
Yes, absolutely! Thousands of taxpayers nationwide have been investing in real estate with their IRA funds for decades! IRA real estate investments may include improved and unimproved land, single and multiple family homes, commercial property, real estate notes and tax lien certificates, as well as other investments.

What kinds of IRA investments are prohibited?
The Internal Revenue Code specifically prohibits IRA investments in life insurance contracts and certain collectibles, such as artwork, coins, rugs and antiques. The Code does not prohibit investment in real estate by an IRA. Certain transactions, however, are prohibited in IRAs and qualified retirement plans under Section 4975 of the Internal Revenue Code. Prohibited transactions are generally those in which the taxpayer and/or his immediate family are personally involved.

My financial advisor says I can’t do this. Why?
Many traditional IRA investment advisors are unaware of the ability to use IRA funds to purchase real estate. Also, many companies only sell traditional investment products and services, such as stocks, bonds, mutual funds and other similar types of investments.

Can I borrow money to purchase real estate with my IRA?
Yes, you can. Leveraged transactions are permitted for the purchase of real estate by an IRA. The loans must be non-recourse, which means that the lender can look only to the real estate, not your IRA, for repayment. Your Capital IRA representative will help you to understand certain taxes that may be imposed on financed real estate owned by your IRA and how to maximize income potential with your IRA funds taking these taxes into account.

Can I live in or use the real estate I purchase with my IRA?
No, you cannot derive any personal gain or self-deal in an IRA investment. However, you can rent the real estate to a tenant who is not a disqualified person (disqualified persons include you, your spouse, parents and children and certain other related parties).

What happens to the income generated by the real estate?
Income generated by the real estate is tax-deferred and deposited back into the IRA.

How do I pay the expenses of the real estate?
The IRA pays all expenses related to the real estate. Capital IRA requires a liquid cash reserve in your IRA account of at least $5,000.00 to ensure that there will always be sufficient funds available to pay these expenses.

What does Capital IRA do with the IRA funds I deposit in my self-directed account?
All cash funds are deposited in _______________bank, a _________________, and are FDIC insured. The value of any asset you purchase with your IRA funds, however, is not guaranteed or insured.

Who takes care of the real estate?
The management of the real estate is taken care of by an independent property manager. Capital IRA will arrange for property maintenance for you through one of our property management affiliates, or you can arrange for a property manager yourself, as long as the property manager is not a disqualified person.

How do I begin this process?
To purchase real estate in your IRA, you must establish a retirement account with Capital IRA and then complete the necessary paperwork to fund your account, either with current IRA contributions or by rolling over other retirement accounts. You will then work directly with a Capital IRA representative to make the necessary arrangements for a real estate transaction.

Why do I want to own real estate in my IRA?
Owning real estate in your IRA gives incredible wealth-building power! You control your retirement funds. A real estate IRA provides diversification, the opportunity for tax-deferred appreciation and income and the chance to buy a retirement home at today’s prices! There are also estate planning benefits (you can pass certain assets to beneficiaries). Real estate is a solid and beneficial alternative to stock market investment, and gives you a hedge against unpredictable swings in the stock market.

Are there any disadvantages to purchasing real estate in my IRA?
There are considerations when purchasing any investment asset and real estate is no different. You cannot guarantee the future value of real estate (or any investment, for that matter), or its anticipated income stream. Also, mortgage interest is not deductible for real estate owned in an IRA. If the real estate is leveraged, you may have to pay unrelated business income tax at the trust rate, which is higher than the individual rate. You should discuss your particular situation with your financial advisor, attorney or accountant. Capital IRA does not provide investment advice. Do I have to buy 100% interest in the real estate I am interested in? No, your IRA can purchase fractional ownership together with other investors, including you.

What happens when I want to sell the real estate?
Once you identify a buyer, Capital IRA will work with you to complete the sale of your real estate any time you direct us to do so. We can prepare your closing documents if you wish. Proceeds from the sale will be deposited back into your IRA account to be kept or used at your direction, possibly to purchase another parcel of real estate or for any other allowed IRA investment.

What occurs upon my reaching retirement age?
When you reach the age for voluntary or mandatory distribution, Capital IRA will work with you and your financial advisor to begin the distribution process, either by liquidating the assets owned by your IRA or by distributing ownership of the assets to you in accordance with the Internal Revenue Code.

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9 Reasons You Should Consider Placing Your IRA in Real Estate


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