Any capital gains w/in the IRA will be taxed as ordinary income when distributed. Although you loose capital gain treatment, when properly distributed in retirement, you may be in a lower tax bracket, perhaps as low as the ltcg bracket.
The property in the IRA can have a loan attached to it, but then it may be subject to UBIT. Many partnerships are formed to invest in real estate and have IRA and non-IRA money in them. Most likely, it cannot be your IRA money and your non-IRA money.
This is not simple stuff and should not be done without consulting a qualified professional. To do so could result in the invested IRA money being considered a premature distribution and subject to tax and penalties.
Has anyone used IRA funds to invest in real estate? If so, what are the administrative / legal requirements? My understanding is that as long as any gains are kept in the IRA, the tax on them is deferred.
Re: Using IRA funds to invest in real estate - Posted by blogger
Posted by blogger on February 01, 2007 at 21:13:45:
Yes, tax is deferred until IRA distribution time as per IRS Regs & law.
And there are big $$$ being invested daily from IRA accounts.
Some great free resources on SDIRA (self directed IRA)RE investing…Entrust has good website with lots of info, and IRS Pub 590, free for the grabbing at the IRS office/form supply or online at IRS site answers lots of questions.
John Merchant has a book on how to use IRA for REI.
Don’t know whether that book is to be found on this site or not but he could tell you.
You can invest IRA money in real estate, but you should work with a company such as Equity Trust or it may be deemed a premature distribution. There may be taxes on the Unrelated Business Taxable Income. If you invest with ROTH IRA money, other than the UBIT, the whole thing can be tax free. Some people do not like it because the depreciation deduction is lost.