SDIRAs - Is this Kiplinger's article statement right or wrong?

[Lynn DeShazo]

Tax people:  Is this statement from a 2011 Kiplinger's article right or wrong?  Here it is:

"But investing in real estate inside an IRA comes with strict rules. Complication number one: Owning property in an IRA negates all the familiar tax benefits of owning investment real estate, says (name withheld), a CPA and financial planner in Pittsburgh. You can't deduct property taxes or mortgage interest or take advantage of depreciation."
 

Is this guy right about being able to deduct property taxes, mortgage interest expense, or depreciation for a rental property held within a SDIRA?  Thanks for any informed replies.

[Brian Eastman]

@Lynn DeShazo

I think you are mis-reading. The author states that inside an IRA you lose the ability to apply deductions. Of course, the corresponding piece that is not mentioned is that the income is not taxed in the first place, so there is no tax to deduct against. **

Investing with an IRA is a totally different tax paradigm, and making this comparison between a given asset (in this case real estate) in after-tax and retirement realms is an apples and oranges scenario.

What one really needs to compare is whether an IRA invested in real estate will have a more secure asset and better overall returns than an IRA invested in other assets.

** However, when one uses leverage or engages in a trade or business with an IRA, then UDFI and UBIT taxation may apply. In these instances where the IRA is subject to taxation, then there are deductions against that taxable income just as in the after-tax world.