Reap the Benefits of Owning Your Rental Property through a Retirement Account, Tax-Free or Tax-Deferred

Reap the Benefits of Owning Your Rental Property through a Retirement Account, Tax-Free or Tax-Deferred

By Stephanie Fryar

Real estate is one of the most popular investments to leverage within a retirement account, also known as a Self-Directed IRA (SDIRA). It is a familiar asset if you own your own home or other type of property, it offers diversification from traditional investments, and the rental income and/or capital gains funnel in tax deferred or tax-free depending on the type of account. While the general concept of investing in a rental property through a SDIRA may be similar to investing outside of a qualified account, there are a handful of rules enforced by the IRS that makes the management of this investment quite a bit different. The reason being that your retirement account is meant to benefit you when you retire, not before. Below is a quick overview of the similarities and differences of owning a rental property in a Self-Directed IRA.

What makes it similar?

A SDIRA gives you the opportunity to make investment decisions in areas based on your knowledge and expertise. In other words, you are not limited to residential real estate. Your IRA can hold various investment property types, including commercial buildings, retail properties, raw land, and acreage (improved or unimproved), single family or multi-unit homes, condos or townhomes, mobile homes, apartment buildings and much more. Your IRA may also purchase foreclosure property as long as the property has already been foreclosed upon.

Reap the Benefits of Owning Your Rental Property through a Retirement Account, Tax-Free or Tax-Deferred

What is the difference?

One of the main differences is that all transactions are processed through your SDIRA, from the purchase of the property, to rent collection, expense payments, proceeds from the sale, etc.

Other disparities are driven by IRS regulations, including the prohibition of using of your SDIRA assets in what the IRS considers “self-dealing” transactions. This means that you must utilize 3rd party services for everything from realtor services, to property management, cleaning/landscaping/pool cleaning services, repairs, home improvements, etc. You also cannot use the property for personal use nor rent the property to disqualified persons, which includes family members of “lineal” relation to you such as your parents or your children.

As a custodian, Preferred Trust Company cannot give advice about specific investments or strategies, but we can provide educational resources and point out the legal issues to consider for your real estate transaction(s). Knowing the rules associated with owning real estate in an IRA is essential and conferring with a legal and tax advisor is recommended.

About Preferred Trust Company

Preferred Trust has 10 years of experience specializing in Self-Directed IRAs that hold alternative assets. In the industry, they set the standard for quick processing times, fewer transaction fees, personalized customer service, and the highest standard of compliance. Preferred Trust is currently waiving the establishment fee and first year administration fee for all new Self-Directed IRA accounts through December 31st, 2021. Learn more about this offer by clicking here or calling 888.990.7892 today!

About the author:

Stephanie Fryar is the Content Creator for Preferred Trust Company. All content she produces is to help educate savvy investors and current clients about Self-Directed IRAs. Stephanie specializes in original content and market research related to alternative investments, but more specifically, real estate investments.

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