Buying Property via an IRA account

Pro

9391

Omaha, NE

Subject: RE: Buying Property via an IRA account

gr33n - 2013-04-15 7:49 AM Can someone tell me why this isn't possible or incorrect please- I know property can be bought and held in an IRA account. So a person with an IRA account that has only cash, buys a house and pays for it in full. Person rents the house to his spouse (for purpose of the example). Spouse pays the rent back into the IRA account in which the property is held. Rental income is not taxed as income, and can not be withdrawn from IRA account outside of standing IRA rules. 1- Retirement is funded via rental payments and probably for more predictable than stock market speculation. 2- At some future point house is sold and there is no capital gains tax. In fact there is no tax at all until funds in the account are withdrawn once official retirement age is add and withdrawals start.

My understanding, and I'm very far form a tax attorney, is that everything you described is possible in the US with exception to the renting it to your spouse part. I believe the IRS has a rule that you can only purchase investment property with your IRA so if you rented it to an immediate family member that would disqualify it as an investment property. Now, you could probably find a different mechanism to have your immediate family member "rent" the house where it wasn't so obvious, but if caught you could get yourself in a ringer very quickly.

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Regular

1023

Madrid

Subject: RE: Buying Property via an IRA account

tuwood - 2013-04-15 3:00 PM

gr33n - 2013-04-15 7:49 AM Can someone tell me why this isn't possible or incorrect please- I know property can be bought and held in an IRA account. So a person with an IRA account that has only cash, buys a house and pays for it in full. Person rents the house to his spouse (for purpose of the example). Spouse pays the rent back into the IRA account in which the property is held. Rental income is not taxed as income, and can not be withdrawn from IRA account outside of standing IRA rules. 1- Retirement is funded via rental payments and probably for more predictable than stock market speculation. 2- At some future point house is sold and there is no capital gains tax. In fact there is no tax at all until funds in the account are withdrawn once official retirement age is add and withdrawals start.

My understanding, and I'm very far form a tax attorney, is that everything you described is possible in the US with exception to the renting it to your spouse part. I believe the IRS has a rule that you can only purchase investment property with your IRA so if you rented it to an immediate family member that would disqualify it as an investment property. Now, you could probably find a different mechanism to have your immediate family member "rent" the house where it wasn't so obvious, but if caught you could get yourself in a ringer very quickly.

Thanks Tony. So theoretically 2 best friends could get together and rent each others respective houses...

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Pro

9391

Omaha, NE

Subject: RE: Buying Property via an IRA account

gr33n - 2013-04-15 8:05 AM

tuwood - 2013-04-15 3:00 PM

gr33n - 2013-04-15 7:49 AM Can someone tell me why this isn't possible or incorrect please- I know property can be bought and held in an IRA account. So a person with an IRA account that has only cash, buys a house and pays for it in full. Person rents the house to his spouse (for purpose of the example). Spouse pays the rent back into the IRA account in which the property is held. Rental income is not taxed as income, and can not be withdrawn from IRA account outside of standing IRA rules. 1- Retirement is funded via rental payments and probably for more predictable than stock market speculation. 2- At some future point house is sold and there is no capital gains tax. In fact there is no tax at all until funds in the account are withdrawn once official retirement age is add and withdrawals start.

My understanding, and I'm very far form a tax attorney, is that everything you described is possible in the US with exception to the renting it to your spouse part. I believe the IRS has a rule that you can only purchase investment property with your IRA so if you rented it to an immediate family member that would disqualify it as an investment property. Now, you could probably find a different mechanism to have your immediate family member "rent" the house where it wasn't so obvious, but if caught you could get yourself in a ringer very quickly.

Thanks Tony. So theoretically 2 best friends could get together and rent each others respective houses...

As far as I understand it, it would be perfectly legal to lease it to a friend.

I read about this several years ago mostly under the guise of buying a long term retirement home. For example if I know I want to retire in Florida I could go shopping for a house and find the one I want today and purchase it with my retirement account. Then I could rent the property to someone else for the next 20 years deferring all taxes on that income and then when I retire I would take ownership of the house as a distribution from my IRA post retirement. I think that was likely the intent of allowing the purchase of real estate with IRA funds.

One could also use it as a straight up investment vehicle. Buying a rental house is no different than buying a mutual fund, other than there's a little more work involved.

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Buying Property via an IRA account

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