Parkfest Blogging

Self directed IRAs and Real Estate IRAs give you the ability to choose from a variety of investment assets, such as private mortgages, notes, real estate, private placements and more. The greatest advantages of a real estate IRA is it frees up new cash for real estate investments. Also, real estate investors can apply their knowledge in real estate investing in which they are already comfortable with to their IRA account allowing them to earn tax deferred and even tax free returns.

There a couple rules associated with the IRA that should be addressed before you leap out and make investments. For example, leveraging an IRA can result in income taxes referred to as Unrelated Debt Financed Income (UDFI) that must be paid by the IRA. Taxes on both are calculated and reported on IRS form 990-T. For additional self directed IRA rules for debt-financed property and income tax review IRS Pub. 598 at www.irs.gov.

Generally, these UDFI taxes are higher than would be paid on income generated from a property that you buy and finance personally. In addition, you are not allowed to deduct property taxes or mortgage interest, and you can’t use depreciation.

All expenses associated with a real estate IRA including UDFI taxes must be paid from funds from the IRA and, therefore, there has to be enough liquidity in the IRA to cover these taxes. All rents and taxes are paid by the IRA.

For the complete list of rules and regulations, talk with an IRA custodian, self-directed IRA facilitator or a tax attorney familiar with IRA rules and regulations.