Double Taxation on ROTH IRA contributions for down payment

[Chris Fore]

I have a solid ROTH IRA and I was interested in using some of the contributions as the down payment on a property. That money has already been taxed (as per the definition of a ROTH IRA). However, once that money gets tied up in the property as equity, when I sell that property down the line, will I pay taxes again on that money?

I was asking a realtor friend and he didn't have an answer.  

Obviously I'm not looking for "official" tax advice but does anyone know the answer off hand?

[Brian Eastman]

@Chris Fore

It depends on how you utilize the Roth.

If you take the contributions as a tax-free distribution to yourself, which you can do, that is now personal money.  If you then invest that personal money in a real estate deal, you will be taxed on the gains unless you deploy a strategy such as a 1031 exchange to push those taxes down the road.

If you transfer the Roth IRA to a self-directed Roth IRA, then the IRA can make the investment into the property. All gains from rents or future sale would be returned to the Roth IRA tax free. If you then wait to take qualified distributions from the Roth IRA, you will never pay taxes on that income.

Keep in mind, it is not you buying the property using Roth money. The Roth IRA is investing in the property instead of something else like mutual funds. All expenses are paid by the IRA and all income flows back to the IRA.