Real Estate IRA FAQs
What are the differences between buying real estate for myself, personally, and purchasing a real estate investment for my IRA?
There are four main differences between purchasing real estate for yourself and for your IRA:
Title - When purchasing an asset for your IRA, it must be properly titled to your IRA. Specifically, it must read "Equity Trust Company Custodian FBO [Your Name] IRA." Equity Trust will not accept any investments that are not properly titled.
Funding - When purchasing an investment (or any portion of an investment) for your IRA, funds must come directly from your IRA. Equity Trust will send the funds directly to the title company/closing agent/attorney per your instructions.
Expenses/Income - Any expenses associated with your IRA investment must be paid from your IRA and any income received must be returned to your IRA.
Signatures - Documents pertaining to your IRA investments must be signed by Equity Trust, serving as custodian on behalf of your IRA.
Can my IRA purchase real estate that I currently own?
No. This is considered a prohibited transaction (see IRC 4975). You may not purchase a property, or interest in a property, that’s currently owned by a disqualified person (this includes you and family members of lineal descent).
Can my IRA purchase real estate that my corporation, partnership, or LLC owns?
No. This would also be considered a prohibited transaction (see IRC 4975).
May I live in or work in a property that my IRA owns (e.g., personal residence, retirement or vacation home, office)?
No. This is considered a prohibited transaction (see IRC 4975).
How do I pay funds to the seller?
You complete an investment form that instructs Equity Trust where to send the funds from your account. Typically, funding to purchase real estate is sent to a title company, attorney, or escrow agent. Funds can be sent by check, cashier’s check, or wire.
I plan to purchase a rental property with my IRA. Does the rental income have to go back into my IRA?
Yes, all income generated by an IRA-owned property must return to your IRA. This ensures that you retain the tax-deferred or tax-free status of the investment.
How does the rental income actually get into my account?
Rental payments are sent to Equity Trust for the benefit of (FBO) your IRA. The checks or money orders should be made payable to:
"Equity Trust Company Custodian FBO [Your Name] IRA #xxxxx."
Once received, the checks or money orders are deposited into your IRA. All checks must be sent to Equity Trust with a payment coupon.
Can my IRA invest in a newly formed entity (e.g., limited partnership, limited liability company, C corporation, land trust) that will invest in real estate?
Yes. Investments in newly-formed private entities are not prohibited under the Internal Revenue Code, with the exception of subchapter S corporations.
Can my IRA purchase an interest in a subchapter S corporation?
No. IRAs are not qualified as investors in subchapter S corporations (please see IRS Letter Rulings
May I use funds from my IRA to renovate property in order to sell it at a higher price?
Yes. However, your IRA must pay all expenses associated with a property that it owns, including renovations. Further, all proceeds from the sale of the renovated property must be deposited into your IRA.
How do I sell a property owned by my IRA?
When you're ready to sell a property that's owned by your IRA, you need to request the original documents from Equity Trust. This is done by completing an investment form.
Once the property has been sold, all funds from the sale must be deposited into your IRA. These funds must be sent to Equity Trust with a payment coupon.
When I sell a property owned by my IRA, may I keep a portion of the proceeds and send the remaining portion to Equity Trust?
No. All income generated from the sale of a property owned by your IRA must be deposited directly into your IRA.