Author Topic: Buy a rental property through a Roth IRA?  (Read 1821 times)

SeaWA

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Buy a rental property through a Roth IRA?
« on: April 05, 2018, 10:42:04 PM »
Can you buy a rental property through a Roth IRA and avoid capital gain tax when selling and avoid income tax on income generated by the rental property?

A link to an existing thread would be fine. I searched for the topic but didn't find any threads.

terran

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Re: Buy a rental property through a Roth IRA?
« Reply #1 on: April 05, 2018, 11:01:03 PM »
You can invest in non-traditional investments in an IRA, but it has to be a self directed IRA (which usually has administration fees), not an IRA from one of the usual custodians.

I'm not too familiar with it, but I think there are also rules against self dealing. I could be wrong, but I think this means buying a property with money from your IRA and then managing the property yourself would not be allowed, but you could provide the money to someone else who would buy and manage the property with you either as a part owner or a lender. I don't know exactly where the line is, or even if this is really how it works, but hopefully looking into self dealing and self directed IRAs will give you a place to start.

SeaWA

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Re: Buy a rental property through a Roth IRA?
« Reply #2 on: April 05, 2018, 11:22:51 PM »
Thank you! This is exactly the tip I needed...

off to do some exciting research!

terran

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Re: Buy a rental property through a Roth IRA?
« Reply #3 on: April 06, 2018, 07:09:01 AM »
No problem, glad I could "help." Report back with what you learn.

Rob_bob

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Re: Buy a rental property through a Roth IRA?
« Reply #4 on: April 06, 2018, 03:23:11 PM »
I seem to remember hearing that any maintenance expenses, like a new roof, have to be paid for with money that is in the IRA, and you don't get any tax deductions, but I don't know that as a fact.  It's not something I would want to do myself.

Slow2FIRE

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Re: Buy a rental property through a Roth IRA?
« Reply #5 on: April 06, 2018, 05:20:43 PM »
SDIRA:

Need to find a custodian (annual fees, usually not that big)
Need to buy the rental property with only funds from the SDIRA
Need to acquire the mortgage with the SDIRA if you can't buy the property completely 100% from SDIRA funding.  This means a commercial loan from a local bank and typically will require at least 25% down (or more), and they will review your numbers to see if it is profitable enough for them to take the risk (because your own personal credit doesn't matter).  Also, expect for this to be an ARM type loan that will have a rate (usually higher than a standard mortgage interest rate) for 5 or 7 years and then go to a "floating rate" after that -> this is highly dependent upon your bank, but those were the types of deals I was offered from local banks in Denver.
Must have a separate property manager.  Not you, not your family, a professional property manager.
All repairs, maintenance, advertising costs, and big capital expenditures must be funded from the SDIRA.  You are not allowed to do any repairs or maintenance on the house, nor your family.
All rents received go to the SDIRA and all payments for Mortgage, Prop Tax and insurance come out of the SDIRA.

Check with your local bank for further rules on avoiding UBTI/UTBI (or whatever it is called, which can cause a taxable event to take place inside of your IRA based on exclusions/rules not being followed properly).

Pretty much lose most of the tax benefits of landlording to gain a tax benefit on the capital gains.  Might make sense if you only concentrate on "A" and "B" properties where you are speculating on appreciation vs cashflow intensive "C" properties.

I like simple, I said hell no after I sat in on a seminar put on by a local bank for real estate professionals and investors a few years ago.

SeattleCPA

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Re: Buy a rental property through a Roth IRA?
« Reply #6 on: April 09, 2018, 07:39:44 AM »
Almost always investing in real estate through an IRA is a bad idea:

https://evergreensmallbusiness.com/self-directed-ira-real-estate-investment-problems/

Furthermore, Roth-style accounts don't usually deliver the tax benefits people think they do:

https://evergreensmallbusiness.com/are-roth-iras-and-roth-401ks-really-a-good-deal/

Finally, most folks can do the real estate investing thing in a very tax efficient manner without entangling the real estate investment and their qualified retirement accounts:

https://evergreensmallbusiness.com/real-estate-vs-ira-and-401k-accounts-part-i/

Slow2FIRE

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Re: Buy a rental property through a Roth IRA?
« Reply #7 on: April 09, 2018, 09:25:06 AM »
Almost always investing in real estate through an IRA is a bad idea:

https://evergreensmallbusiness.com/self-directed-ira-real-estate-investment-problems/

Furthermore, Roth-style accounts don't usually deliver the tax benefits people think they do:

https://evergreensmallbusiness.com/are-roth-iras-and-roth-401ks-really-a-good-deal/

Finally, most folks can do the real estate investing thing in a very tax efficient manner without entangling the real estate investment and their qualified retirement accounts:

https://evergreensmallbusiness.com/real-estate-vs-ira-and-401k-accounts-part-i/

Posting those links is much easier than all the typing I did earlier.  I'll have to use them next time someone asks about SDIRA for real estate.

SeattleCPA

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Re: Buy a rental property through a Roth IRA?
« Reply #8 on: April 09, 2018, 01:45:35 PM »
Almost always investing in real estate through an IRA is a bad idea:

https://evergreensmallbusiness.com/self-directed-ira-real-estate-investment-problems/

Furthermore, Roth-style accounts don't usually deliver the tax benefits people think they do:

https://evergreensmallbusiness.com/are-roth-iras-and-roth-401ks-really-a-good-deal/

Finally, most folks can do the real estate investing thing in a very tax efficient manner without entangling the real estate investment and their qualified retirement accounts:

https://evergreensmallbusiness.com/real-estate-vs-ira-and-401k-accounts-part-i/

Posting those links is much easier than all the typing I did earlier.  I'll have to use them next time someone asks about SDIRA for real estate.

:-)

SeaWA

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Re: Buy a rental property through a Roth IRA?
« Reply #9 on: April 11, 2018, 09:42:12 PM »
Almost always investing in real estate through an IRA is a bad idea:

https://evergreensmallbusiness.com/self-directed-ira-real-estate-investment-problems/

Furthermore, Roth-style accounts don't usually deliver the tax benefits people think they do:

https://evergreensmallbusiness.com/are-roth-iras-and-roth-401ks-really-a-good-deal/

Finally, most folks can do the real estate investing thing in a very tax efficient manner without entangling the real estate investment and their qualified retirement accounts:

https://evergreensmallbusiness.com/real-estate-vs-ira-and-401k-accounts-part-i/

Thank you SeattleCPA!  These links were all I needed to read to disabuse me of the idea that I had found an interesting way to avoid some capital gains taxes.

Thanks to all the others that chimed in. This was not a close call, it does not appear to be a good idea.