Self-Directed IRAs for Real Estate: A Trap in Hiding?

Written By Brad Parker

Every once in a while, we see Real Estate Gurus (eg people selling courses) rave about the benefits of using an IRA to hold real estate. There are many, MANY downsides though, so unless someone is a seasoned-investor, it’s not a path we would recommend, and here’s why:

  • Loss of tax benefits holding RE in an IRA (mortgage deduction, property taxes, utilities, depreciation, 1031’s)

  • Yearly account fees for IRA can be expensive

  • There is no step-up in basis at death to the FMV of the property for heirs

  • Required RMD’s once you hit a certain age since it’s a retirement account

  • Property if sold, is taxed at ordinary income tax rates as profits distributed from retirement account (normally property taxes held for more than a year are subject to capital gain rates)

  • Any repairs and maintenance on property cannot be done by you

  • You/friends/family cannot stay at the property for free or reduced rate

  • Any repairs/expenses must be covered by IRA funds, you cannot pay for property expenses outside of the IRA

  • If you only have one property, it can be very risky to have your entire retirement account tied up in one asset

Brad Parker
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