The trust department at Delta Trust offers you the unique ability to own real estate in your IRA account. This is one of our specialties and you can learn more here. Since this option is so rare, we often have a lot of questions surrounding property ownership. Here are a few common questions that we are asked on a regular basis.
How do I put property into my IRA?
First, your IRA needs to be set up with a custodian that will hold assets such as property. Then, the custodian will purchase the property using those IRA funds and will hold the deed for that property for the time they are custodian or the period of time until the property is distributed.
Can I put currently owned property in my IRA?
No, you cannot. If you have already purchased property you cannot transfer the title from yourself to the IRA. The property has to be purchased by the IRA and titled in the name of IRA.
Can I rent to my son or daughter?
No, you cannot. IRS regulations prohibit this action. Renting or leasing property to a family member that is owned by your IRA can create severe tax penalties.
Can I pay for expenses pertaining to the property?
No, you cannot. All expenses regardless of what they are should be paid out of the IRA. If you pay for something this could be deemed a distribution to you and would be considered taxable. If you pay for something and ask for a refund of funds spent this would also qualify as a distribution and would be taxable to you.
How do I take possession of the property from the IRA?
An appraisal will have to be done at that time. Once the appraisal is complete, the property will then be delivered off at that value and a 1099r will be generated at the end of the year showing you took the property and the value at the time you took it. That value is what will be taxable to you. At the time of distribution a deed will be created removing the custodian as owner and adding you as the individual owner.
Can I sell the property while it is in my IRA?
Yes, you can; however, keep in mind that all contracts and paperwork must be signed by the custodian as they hold that asset. All proceeds from the sell will go into the IRA. If you choose to take any amount of those proceeds you will be taxed on that amount.
Who collects the rent on property?
All rent and lease payments should be mailed to the custodian. If you choose to collect the funds, then you must deliver those funds directly to the custodian. All income must flow through the IRA for proper tracking and reporting. Think of the income as dividends on a stock held in your investment account. All dividends are paid to that account.
Hopefully this Q&A was helpful and clarified a few common misconceptions regarding owning real estate in your IRA. For more information, contact Stephanie Parker, IRA Administrator and Trust Officer at Delta Trust.
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