Can You Use Your IRA To Buy A House?

InvestAccording to Section 408 of the Internal Revenue Code the answer is YES!  It is possible to use your IRA funds to purchase a home as long as you follow the rules.  You cannot benefit directly from the purchase of the property and can use some or all of the funds you have saved in your tax-sheltered IRA.

Checkbook IRA

These are self directed IRA’s and you can move your funds around as you want to.  You don’t have to pay a company to take care of it for you.  You can capitalize this fund with money rolled over from your current retirement account.  You create a Limited Liability Company or LLC and your new IRA purchases all the memberships in the LLC.  Your IRA money is now in an LLC and you are ready to purchase some real estate.

What Are The Rules For Checkbook IRA?

  • You can sell a house and purchase another one within the IRA and you can purchase more than one property and hold it at a time.  Your IRA owns the property not you personally.
  • You can invest in vacant land, residential property or trust deeds that back mortgages.  You can pool your money with other people who are investing with their IRA.
  • Any money you use has to come directly from your IRA not you personally.  You cannot take the profits out of the IRA or be reimbursed for any expenditures.  Escrow checks and closing costs must come from the IRA.
  • Costs associated with renovating and upgrading and the carrying costs of the property must come from the IRA and any income has to go back into the IRA.
  • You cannot do business with any family members.

What About Rental Investment Property?

You cannot use the property as your own residence or vacation home and that applies to your whole family.  Therefore, the best policy is to rent the property annually as you can’t use it and want to make the most income possible from the property.  Naples Florida is in desperate need of annual rentals at the moment as our inventory is almost zero so this would be a great opportunity to take advantage of low rental inventory and invest your IRA money.

The rental income is held in the IRA; you cannot benefit from the income and the IRA must make the needed repairs as well.  This makes the rental income tax deferred and there is no capital gains tax when you sell an IRA owned property.

You cannot take money of this IRA until you are 591/2 as in a normal IRA without incurring the large penalty and paying the income tax.

Talk to your accountant about the possibility of purchasing properties in Naples Florida with your IRA investment. Prices are going up but there are still very good properties to be had at reasonable prices.  Let me help you find the property and then manage it for you so that later on you can enjoy the benefits of your tax deferred income property.

Remember, it is always toasty in Naples and you deserve your piece of Naples sunshine.

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