tax-free profits on real estate using a self-directed IRA

[Mike Mitchell]

I've recently purchased 2 houses using a self-directed Roth IRA. Is anybody else out there using this incredible tool? If so, let's talk :D

[Will Barnard]

This is a really old thread and the original contributors have not posted in it for years.

That said, some of the info was not exactly correct and some of it lacked necessary details.

First off, there is no 3 property limit, you can invest in as many deals as you choose so long as the IRA has the funds for it. Secondly, to have an IRA fund a portion and you fund a portion requires a lot of things as an IRA owner may not personally benefit from the IRA investments (prohibited transaction), as such, certain requirements must be followed to do such a thing.

Also, there was mention of buying, fixing, then re-selling. If that is done and is the intent of the investment, it will likely be taxed UBIT (a complicated tax for IRAs) as such a business competes with non-tax exempt/tax-deferred business operations.

Finally, in my opinion, the best way to utilize a SDIRA is to make loans secured by RE (for passive investments). Since RE offers tax depreciation deductions on buy and holds, you lose such an advantage in a SDIRA as it is already a tax advantaged entity. Secondly, you must be so very careful as to not perform a prohibited transaction or involve a disqualified party. Either will result in the full early dispursemnet of the IRA and result in the moneies taxed along with an additional 10% penalty. (If your IRA is worth $1M, and the prohibited transaction was only $10 dollars, the entire $1 million IRA is now penalized.