The IRA must maintain all operating costs and expenses, as you cannot pay these out of your pocket or perform any maintenance on the property.
You can’t take any tax benefits (operating losses, depreciation, etc.) other than the normal IRA income tax deferrals.
If these rules are broken, your IRA could be disqualified, and that means a potentially large taxable event.
In addition to real estate, potential investments you could hold in a self-directed IRA include precious metals, tax lien certificates, cryptocurrencies, private equity investments, and more. You cannot use a self-directed IRA to buy most collectibles, such as coins, artwork, and antiques. If you want to find out if a particular type of investment is allowed, check with an experienced tax professional.
If you open a self-directed IRA to own real estate, you can buy pretty much any type of property you can think of. This can mean a single- or multifamily rental property, a commercial building, or even undeveloped land.
Purchasing real estate with your IRA (absent very few exceptions) is not the best idea. This is a consequential decision and one that may impact your future. Some common transactions prohibited in a self-directed IRA:
- You can’t hold real estate or property that you or other disqualified persons live in, plan to live in or use in any way while that property is held in your retirement account.
- You can’t purchase private equity shares of your own business (or that of any other disqualified person).
- You can’t loan money to yourself or other disqualified persons from your IRA or other tax-advantaged retirement account.
- You can’t make “stepped transactions,” that is, a series of transactions that circumvent tax laws on purpose or accidentally. For example, you can’t loan money from your IRA to your brother (who’s not a disqualified person), who then loans that money to his wife, who then loans it to you.
You cannot purchase the following in your IRA:
- Collectibles, such as art, antiques, stamps, gems, rugs or anything else the U.S. Treasury Department deems to be a collectible
- Life insurance
- The stock of a Sub-Chapter S Corporation (Solo(k) plans can invest in an S Corporation.)
- Viatical settlements (sales of life insurance policies to a third party)
- General partnerships