Can an IRA Account Own Property?
Original post by Sara Melone of Demand Media
Traditionally, investors select standard investments for their individual retirement accounts (IRAs), such as stocks, bonds and mutual funds. While there is nothing wrong with these types of investments for an IRA, there are other options available to you. For example, you may not be aware that your IRA account can actually own property.
Many investors already make use of their IRA account to purchase stocks, but the IRS also allows you to use a self-directed IRA account to purchase and own property, as noted by "Fortune Small Business" writer, Jeanne Lee. You can use an IRA account to purchase residential and commercial real estate, invest in a business startup and even buy cattle, cars and boats.
Funding a Purchase
A property purchase through an IRA account must be handled in a specific manner, indicates self-directed IRA firm, Equity Trust Company. Property purchased for an IRA must be paid for only with funds that come directly from the IRA account, and the title for any property must be attributed to the IRA and the custodian or trustee in charge of managing the IRA. In addition, the IRA account must have adequate funds available to pay the entire cost of maintaining the property. For real estate, this encompasses the cost of insurance and property taxes as well as maintenance and repairs.
Proceeds and Profits
If you decide to purchase or own property through your IRA account, you should know how to handle the proceeds from sales or profits resulting from property ownership. Just as the funds for purchasing and maintaining property must come only from the IRA, any money made through the sale or rental of IRA-owned property must be funneled directly back into the IRA account. You do not pay taxes on profits your IRA-owned property earns until you reach retirement age and begin taking distributions from your account.
There are a few important factors to keep in mind if you wish to go this route for an IRA investment. Since not all IRA management companies deal in real property, you must find a custodian or trustee company experienced in IRA-owned property to assist you with transactions. You should be aware that you cannot use your IRA to purchase property you already own. You should also know that you are prohibited from living or working in any property your IRA owns, according to IRS Publication 4975.
- "Fortune Small Business"; Take Charge of Your IRA; Jeanne Lee; May 2007
- Equity Trust Company: Real Estate FAQs
- Marketwatch; Managing IRA-Owned Rental Properties; Chris Pummer; April 2009
- IRS: Section 4975 - Tax On Prohibited Transactions
About the Author
Sara Melone has had a lifelong passion for writing. After finding a way to incorporate writing into every career manifestation for over a decade, Melone now spends her days as a full-time freelance writer and editor for a variety of online and offline publications. She completed a bachelor's degree in English with a concentration in writing.