From:  Beverly
Date:  Sun, 26 Oct 2003

I want to purchase real estate with my IRA. Is that possible?

If so, will I have to pay all those nasty penalties?

Thanks,
Beverly

Answer

Date:  31 Oct 2003

Hello Beverly,

An IRA is allowed to own real estate. Typical IRA trustees, such as stock brokerage companies and most banks, will refuse to accept real estate. You have to find a trustee that will accept the property, and they typically charge high maintenance fees.

Remember that income distributed from an IRA is typically taxed as ordinary income, so there is a high tax cost involved in using an IRA to hold real estate. A Roth account is a better alternative.

There are many potential issues from holding rental real estate in a retirement account, including subjecting the account to an income tax on unrelated business income. You should definitely get some detailed professional guidance before you go ahead with this.

Good luck!
Mike Gray

For answers to new questions, subscribe to our newsletter, Michael Gray, CPA's Tax & Business Insight by filling out the form below.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained on this website was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.