IRAs don’t normally have any need for a 1031 exchange although they
are allowed to do so if needed to decrease taxes. Money in an IRA can generally move tax free
from one asset class to another, so a 1031, which allows you to defer any
taxable gain on exchanges of like-kind assets (like real estate for real
estate), is rarely needed.
However,
IRAs may have taxable income (and taxes) when assets,
including real estate, are purchased with debt financing. In that
specific case, the IRA may take advantage of the 1031 rules and exchange
the first debt financed property for another. We usually see that
exchange being real estate for real estate. The result is that all or
most
of the IRA income taxes are deferred.
An IRA may borrow money from a bank to purchase property; an IRA with
$100,000 can have the buying power of $300,000 or more. Leverage is seldom, if
ever, available with securities investments in IRAs—another benefit to
non-traditional IRAs.
Many of our clients believe that investing in a cash flowing real
estate property with funds they have available in their IRA maximizes the value
of their account. Many of them selected real estate as an asset after
being unsuccessful with more traditional retirement investments. They are
making their own best investment choices given their unique knowledge and
experience using their own retirement funds. They generally are already doing
similar investments with their non-IRA funds, which is where they got the
experience in the first place.
But like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction IRA can help with the administration and bookkeeping of your IRA, and will ensure your transactions and/or conversions are done according to IRS code.
Browse our website for more answers to the most common questions and concerns we receive. New Direction IRA is committed to providing you with the best education so you can self-direct your IRA successfully.
