Question: Is it true I
can’t live in or vacation in my IRA-owned real estate?
Benefiting personally from any asset owned by your
IRA is prohibited by the IRS. It’s called self-dealing. Furthermore, you can’t let any of your lineal
relatives benefit from the asset either; this includes your parents,
grandparents, children, grandchildren, spouse and fiduciaries. None of you can
live in or lease or vacation in real estate owned by your IRA.
Additionally, you can’t put any personal funds or
sweat-equity into the property. New Direction spends the majority of its
educational efforts on the rules regarding self-dealing. Unlike having your IRA own shares of IBM or
some other security, the temptation and ability to influence a real estate
asset is very real. Using personal funds
or time (“sweat equity”) to benefit the property is strictly prohibited.
Think of it this way: Your IRA is taking advantage of IRS
rules that allow it to grow tax-free or tax-deferred. The assets that you
purchase with your IRA are not yours, and shouldn’t be viewed as such. We tell
our clients that they should think of the IRA as a separate entity (we call it
Uncle IRA to illustrate this separation).
The client’s job is to make good decisions related to the
investment, but not have transactions with Uncle IRA or his assets. These rules are the same for any asset owned
by the IRA, but like we mentioned, the temptation to influence real estate owned
by your IRA is much greater than other assets.
When it comes time to distribute the asset, you can
certainly take it out of your IRA and live in it then. It becomes your personal property after
distribution. Smart investors will have maximized the investment before then,
however, by renting it to tenants or buying property that has increased in
value over the years.
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.
