Goal: to list the five reasons why an investor should not buy real estate with a self-directed IRA
Total Word Count In This Document: 956
Title: ?5 Reasons an Investor Should Not Buy Real Estate With a Self-Directed IRA?
What is a self-directed IRA?
A self-directed investment retirement account (or IRA) is an individual retirement account that allows alternate investments for the owner?s retirement savings. These alternate investments can be anything from real estate to private mortgages, from private company stock to precious metals, and even sometimes the intellectual property of the owner. Self-directed IRAs are provided by most financial institutions in the United States, for which they serve as the trustee or custodian. This means that …show more content…
Doing so will open up your IRA to current tax liabilities, such as the unrelated business income tax, since the IRS considers income that results in debt in an IRA as business income instead of investment income, profoundly diminishing your tax benefits with the IRA.
You Are Not Taking Advantage of Tax Strategies Outside the Self-Directed IRA
As the most tax-favored asset class, real estate can offer a ton of tax-reducing potential benefits that can have an immediate and positive impact on the real estate investor?s burden of income tax. However, these lucrative tax advantages are unavailable to real estate investors when it is their IRA that is doing the investing and not their own, independent stock and funds. This is because the IRS views the IRA as a distinct entity apart from its owner. Any transactions made within the IRA means that any of those potential advantages from those transactions do not apply to the account?s owner.
You Have Not Exhausted Opportunities to Increase Profits with Sweat Equity Outside an …show more content…
Sweat equity is an incredibly cost-efficient and appealing way for real estate investors to increase their equity at a minimal cost to themselves. However, the IRS sees the investor?s work on the property as a service provided to the IRA, which is against their rules and can subject you to devastating taxes and other related penalties.
You Are Unwilling to Abide By the Strict IRS Regulations
Finally, you should not purchase investment property with a self-directed IRA if you are unwilling to abide by the IRS? strict rules and regulations over self-directed IRAs. The rules and regulations mentioned in the points above are just some of many that they have, and if you don?t want to follow or get tangled up in them, then it is wise to just not buy property using your self-directed IRA and save yourself the trouble. Using a self-directed IRA does not give the investor as much freedom to do what they want with their account as it may seem.
If you are a real estate investor and are considering buying investment property using a self-directed IRA, then it is strongly advised that you consult with your accounting professional before you purchase anything with your account to see if any of these reasons or situations applies to
Total Word Count In This Document: 956
Title: ?5 Reasons an Investor Should Not Buy Real Estate With a Self-Directed IRA?
What is a self-directed IRA?
A self-directed investment retirement account (or IRA) is an individual retirement account that allows alternate investments for the owner?s retirement savings. These alternate investments can be anything from real estate to private mortgages, from private company stock to precious metals, and even sometimes the intellectual property of the owner. Self-directed IRAs are provided by most financial institutions in the United States, for which they serve as the trustee or custodian. This means that …show more content…
Doing so will open up your IRA to current tax liabilities, such as the unrelated business income tax, since the IRS considers income that results in debt in an IRA as business income instead of investment income, profoundly diminishing your tax benefits with the IRA.
You Are Not Taking Advantage of Tax Strategies Outside the Self-Directed IRA
As the most tax-favored asset class, real estate can offer a ton of tax-reducing potential benefits that can have an immediate and positive impact on the real estate investor?s burden of income tax. However, these lucrative tax advantages are unavailable to real estate investors when it is their IRA that is doing the investing and not their own, independent stock and funds. This is because the IRS views the IRA as a distinct entity apart from its owner. Any transactions made within the IRA means that any of those potential advantages from those transactions do not apply to the account?s owner.
You Have Not Exhausted Opportunities to Increase Profits with Sweat Equity Outside an …show more content…
Sweat equity is an incredibly cost-efficient and appealing way for real estate investors to increase their equity at a minimal cost to themselves. However, the IRS sees the investor?s work on the property as a service provided to the IRA, which is against their rules and can subject you to devastating taxes and other related penalties.
You Are Unwilling to Abide By the Strict IRS Regulations
Finally, you should not purchase investment property with a self-directed IRA if you are unwilling to abide by the IRS? strict rules and regulations over self-directed IRAs. The rules and regulations mentioned in the points above are just some of many that they have, and if you don?t want to follow or get tangled up in them, then it is wise to just not buy property using your self-directed IRA and save yourself the trouble. Using a self-directed IRA does not give the investor as much freedom to do what they want with their account as it may seem.
If you are a real estate investor and are considering buying investment property using a self-directed IRA, then it is strongly advised that you consult with your accounting professional before you purchase anything with your account to see if any of these reasons or situations applies to