Longboat Retirement Solutions LLC

A Self Directed IRA or Solo 401k Can Hold Real Estate as an Investment. April 29, 2016

A Self Directed IRA or Solo 401k can hold real estate as an investment.

Why does this make sense, or what would be the benefit?

In short, your retirement account balance can grow as it collects rent, and if the property appreciates in value, you could sell it down the road for a gain.

There are restrictions and regulations that you need to follow.

Number one: You cannot live in the property.

Number two: You cannot repair the property; you must contract out the work.

Basically, be sure that you, personally, are not receiving benefits or doing work for the property.

Naturally you will want to remember the rules of Prohibited Transactions – don’t break them.

You will want to think about the ramifications of Unrelated Business Income Tax (UBIT) if you use a Self Directed IRA. UDFI, Unrelated Debt Financed Income, is a component of UBIT, and applies to IRA income generated by financial assets.

A Solo 401k has the added benefit of not being subject to UDFI or UBIT.

Describing UDFI will be a subject of an entire blog; for now, just remember that it exists, and inquire with your accountant if you are on the verge of purchasing property within you IRA.

 

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