Can I Live in my Real Estate IRA Property?

Question: Is it true I can’t live in or vacation in my IRA-owned real estate?

Answer: True. Benefiting personally from any asset owned by your IRA is prohibited by the IRS. It’s called self-dealing. Furthermore, you can’t let any of your lineal relatives benefit from the asset either. This includes your parents, grandparents, children, grandchildren, spouse and fiduciaries. None of you can live in or lease or vacation in real estate owned by your IRA.

 

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Additionally, you can’t put any personal funds or sweat equity into the property. New Direction Trust Company spends the majority of its educational efforts on the rules regarding self-dealing. Unlike having your IRA own stock in a company that you can't possibly influence, the temptation and ability to influence a real estate asset is very real. Using personal funds or time (“sweat equity”) to benefit the property is strictly prohibited.

Think of it this way: Your IRA is taking advantage of IRS rules that allow it to grow tax free or tax deferred. The assets that you purchase with your IRA are not yours and shouldn’t be viewed as such; your IRA is a separate investment entity and is the actual "owner" of the assets it holds.

As the account holder, your job is to make good decisions related to the investment but also to maintain arm's length distance from said investment. These rules are the same for any asset owned by the IRA, but like we mentioned, the temptation to influence real estate owned by your IRA is much greater than other assets.

You can withdraw the real estate in kind when it comes time to distribute the asset, at which point it becomes your personal property. Smart investors will have maximized the investment before then, however, by renting it to tenants or buying property that has increased in value over the years.

Like all investments, due diligence is required to decide what will work best for your IRA and its investments. New Direction Trust Company can help with the administration and bookkeeping of your IRA and will review your prospective transactions.

Reach out to New Direction Trust Company by logging into your client portal at portal.ndtco.com or by giving us a call at 877-742-1270.