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Owning real estate within your IRA offers an exciting avenue for diversifying your investment strategy. However, as with any investment approach, there are specific guidelines and nuances to be aware of. At New Direction Trust Company (NDTCO), we strive to ensure our clients are well-informed and equipped to navigate these intricacies. Here are the top seven things you must know when holding real estate in your IRA with NDTCO:
Engaging Property Managers
It’s imperative to remember that the management agreement is established between the property manager and your IRA. Consequently, New Direction is the signing authority on this agreement. Furthermore, property managers are required to sign and return the Property Manager Acknowledgement form to NDTCO.
Annual Reporting by Property Managers
Each year, property managers are obligated to submit an accounting report to NDTCO detailing beginning and ending cash balances, and all other income and expenses associated with the property.
Handling Payments
Always ensure that you do not personally accept payments from the property manager. It’s essential to note that these funds are the property of your IRA and should be treated as such.
Property Use Restrictions
The real estate within your IRA is strictly for investment purposes. Neither you nor your immediate family members are permitted to use it for personal reasons. If you’re uncertain about who qualifies as ‘immediate family’, you can learn more here.
Expenses and the IRA
It’s crucial for the IRA to shoulder all property-related expenses, especially insurance and real estate taxes. Our regulators pay close attention to this aspect. Ensuring that these expenses are promptly met is paramount. For a seamless experience, use the New Direction portal to manage and pay all property expenses. It is also important to remember that property taxes must be paid promptly and by using the IRA funds.
Mortgage Concerns
If your IRA holds a mortgage on the real estate, it’s a mandatory IRS requirement to file a 990T annually. Should your accountant be unfamiliar with this specific filing, a company like IRA Tax Services could assist you in this matter.
Understanding UBIT
Should your IRA be liable for “Unrelated Business Income Tax” (UBIT), view it positively—it’s an indication that your IRA is generating profits! Be proactive by paying close attention to your 990T to see if the property is showing income and consider retaining funds in the account to cover any tax payments or other expenses that may arise.
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Harnessing the power of a self-directed IRA can significantly bolster your retirement plan, with real estate investments playing a pivotal role. However, it’s essential to remain diligent and adhere to the stipulated rules. At New Direction Trust Company, we’re here to guide you every step of the way. Happy investing!
