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The Laurex Process: Strategy Clarification
Buying Investment Real Estate in a Retirement Account
By Trust Administration Services Corporation

You may purchase investment property directly from within your IRA or business retirement account. Title to the property would be held in the name of your retirement account (First Regional Bank c/f Client Name Retirement Account). Any income or expenses related to the property must flow through the retirement account. Income from the property is tax-deferred since it is in a retirement account.

You may purchase a partial interest in a property. For example, if the property is selling for $100,000 and your retirement accounts contributes $25,000 toward the purchase, and then your retirement account owns “25% as an undivided interest”. Therefore, 25% of all income and expenses would flow through the retirement account.  The additional 75% of the property may be purchased by one or more individuals or another retirement accounts. The percentage of ownership depends solely on the actual transaction.

You may be able to leverage the purchase of real estate in the retirement account. However, it is often difficult to find a lender that will lend to a retirement account. The lender can not lend to you on behalf of your retirement account.

You may sell the interest of the property owned by the retirement account to an unrelated party at any time. The proceeds of the sale would be returned to the retirement account. You may then invest these proceeds in another property or any other asset (s) allowed in a retirement account. Since the transaction is within your retirement account, there are no capital gains to pay. Income in a retirement account is tax-deferred until you begin taking distributions from the account, usually after age 59 ½. Retirement account distributions are taxed at your ordinary income rate. Distributions from a Roth IRA are tax free.

You may also invest your retirement account funds in a limited partnership or limited liability company that buys the real estate directly. Then you retirement account would own a portion of the LP or LLC, not the real estate.

You can not:

  • Enter into a transaction to buy or sell real estate to or from yourself and your retirement account.

  • Pay property related expenses with your personal funds then be reimbursed by your retirement account.

  • Live in or vacation at any property that is owned by your retirement account.

  • Write-off depreciation or other expenses from the property owned in a retirement account.

  • Earn a commission or fee on any transactions involving your retirement account.

Any reference to you also applies to any related party. A related party is considered to be you, your spouse, your ancestors and your lineal descendants. Your siblings may also be considered related parties.

Additional information is also provided in the Resource Section of our website at www.trustlynk.com. We suggest you review information on Prohibited Transaction and Unrelated Business Income. In addition, you should consult your financial advisor, attorney or accountant before implementing any significant change to your portfolio. 

Article Provided by:

Trust Administration Services Corporation