At 1031 Exchange Place, we understand that navigating the rules surrounding IRA real estate investments can be complex. Prohibited transactions are a critical area to understand in order to protect your IRA and avoid penalties or even disqualification. The following is a summary of prohibited transactions for IRA real estate investments:
- Self-dealing: Transactions that directly or indirectly benefit the IRA owner, their spouse, descendants, or ascendants, or any entities owned or controlled by them, are not allowed. This includes using the property for personal use, leasing it to a disqualified person, or providing services to the property.
- Borrowing from or lending to the IRA: The IRA owner or disqualified persons cannot lend to or borrow from the IRA. This includes personal guarantees on loans for the IRA-owned property.
- Sale or exchange of property: The IRA owner cannot sell a property to their IRA or vice versa. Exchanges between the IRA and disqualified persons are prohibited.
- Transfer of income or assets: The IRA owner or disqualified persons cannot transfer income or assets from the IRA-owned property to themselves, except for the distribution of income according to IRA rules.
- Excessive compensation: The IRA owner or disqualified persons cannot receive excessive compensation for services rendered to the IRA-owned property.
- Mixing personal and IRA funds: The IRA owner cannot commingle personal funds with IRA funds when purchasing, maintaining, or improving the property.
- Non-permissible investments: The IRA cannot invest in collectibles, life insurance contracts, or S corporations.
- Use of property as collateral: The IRA-owned property cannot be used as collateral for a personal loan or any transaction that involves the IRA owner or disqualified persons.
It is crucial to consult with a professional familiar with IRA real estate investments to ensure compliance with IRS regulations and avoid penalties. At 1031 Exchange Place, our team is ready to help guide you through the process and answer any questions you may have.