At 1031 Exchange Place, we understand the importance of managing your investments effectively. Yes, you can manage properties owned by your Individual Retirement Account (IRA), but there are specific rules and regulations to follow in order to maintain the tax-advantaged status of your IRA.
Your IRA must be a self-directed IRA, which allows you to invest in alternative assets like real estate. Once you have set up a self-directed IRA, you can use it to purchase and manage investment properties. However, you must adhere to the following guidelines:
- Arms-Length Transactions: All transactions involving your IRA-owned properties must be carried out at arm’s length, meaning you cannot personally benefit from the property or engage in any self-dealing. For example, you cannot live in the property, use it for personal purposes, or rent it to family members.
- Prohibited Transactions: You cannot engage in transactions with disqualified persons, which include you, your spouse, your lineal ascendants and descendants, and their spouses.
- Unrelated Business Taxable Income (UBTI): Any income generated from debt-financed property or an active business within your IRA may be subject to Unrelated Business Income Tax (UBIT).
- IRA Custodian: You must work with an IRA custodian who specializes in self-directed IRAs and is knowledgeable about the specific rules and regulations. The custodian will hold the title to the property and facilitate all transactions on behalf of your IRA.
- Expenses and Income: All expenses related to the property, such as maintenance, repairs, taxes, and insurance, must be paid from your IRA. Likewise, all rental income must be deposited directly into the IRA.
- Property Management: While you can manage the property yourself, many investors choose to work with a professional property management company to avoid potential conflicts of interest and to ensure compliance with IRA regulations.
Remember that failing to comply with the rules and regulations set by the IRS can result in severe penalties and jeopardize the tax-advantaged status of your IRA. It is crucial to consult with a tax advisor or financial planner experienced in self-directed IRAs before investing in real estate through your IRA.
At 1031 Exchange Place, we are committed to helping you make informed decisions about your investment strategies. If you have further questions or need assistance, please do not hesitate to contact our team of experts.