Many rental real estate investors choose to engage a property management firm to run aspects of their rental properties for them. With real estate owned in a Real Estate IRA or other Self-Directed IRA, it is required because ownership must be at arms length and you must not provide service to the IRA owned property. For the services that property managers perform, their fees are very reasonable.

The logic of Real Estate IRAs

By electing to hold an investment property within a Real Estate IRA (also called a “Self-Directed IRA”), taxpayers can combine many of the advantages of real estate ownership with the advantages offered by the IRA itself.

Advantages of real estate in your IRA

o   Leverage (must be non-recourse)

o   Tax benefits (tax-free and/or tax-deferred income)

o   Current income in form of rent

o   Potential for price appreciation

o   Potential sale of mineral, pasture, timber or farming rights

o   Capital gains tax treatment on sale (only on leveraged real estate)

o   Availability of tax deferral on exchange of “like-kind” properties (only on leveraged real estate)

o   Value almost never falls to zero

o   Easy to understand

Advantages of Traditional IRAs

o   Tax deductible contributions for qualified individuals

o   Deferral of taxes on gains until at least age 70½

o   Asset protection under federal and most state laws

Advantages of Roth IRAs

o   Tax-free gains until at least age 70½

o   Tax-free growth

o   No required minimum distribution

o   Asset protection under federal and most state laws

Joint us in Part Two as we talk about some things you need to be aware of including rules against prohibited transaction and self-dealing.

For more information about your specific situation, please sign up for a free consultation with our Senior Vice President, Sean McKay.