Nos Plumbing
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Ever wondered what its like to own real estate with your IRA?
To get one misconception out of the way...when you own rental real estate in your IRA, "you" do not own it. Your account does. That's important to remember, because the rules about holding real estate in an IRA revolve around the fact that your account is a separate legal entity. What does that mean? Let's take a look.
If you own rental real estate in your IRA, all expenses are paid by the account and all rents are paid to the account. So, if there was some kind of plumbing disaster that cost several thousand dollars, you might have to direct your custodian to sell some stock in order to pay for the expenses.
Technically, you could "loan" cash to the account to help pay for real estate in an IRAS or you could have the account "borrow" from a bank, but the account itself cannot be used as collateral, so it can get complicated. Since, you and the account are "separate", the account itself can never be used as collateral for a personal loan and creditors do not have access to funds held in the account.
So, the separate legal entity rule protects your future wealth from current day defaults. If you did get financing so that you could own rental real estate in your IRA, only the property could be used as collateral, not other assets within the account.
If you are holding any type of investment real estate in an IRA, you cannot use your personal checking account to pay for repairs, maintenance or other expenses. Another thing to note is that you could not "dip" into the income generated by real estate in an IRA in order to pay for personal expenses. With a Roth, you can withdraw your initial investment at any time after the "seasoning period" has passed, but other withdrawals and any withdrawals from a non-Roth account are subject to income taxes for that year.
To own rental real estate in your IRA can be advantageous in several ways. First, you have a steady stream of income rolling into the account. Second, all of that income is tax-free or tax-deferred, depending on the type of account.
Third, the property itself will usually continue to increase in value, so it could be sold at some time in the future and the profits returned to the account would again be non-taxable or taxes would be paid upon withdrawal. It is primarily the savings on taxes that makes buying real estate in an IRA attractive.
An important thing to remember is to avoid anything that could be considered "self-dealing" or an "indirect benefit". Otherwise, your account could lose it tax-exempt status and you could be forced to pay income, capital gains and other taxes on all of the profits made from buying real estate in your IRA.
For example, if you own rental real estate in your IRA, you or one of your close family members could not lease an office or an apartment there. If you find the right property, you can amass a fortune for your retirement. Just be sure to get some good professional advice and invest with care.
So there you have it, a few simple facts to know when it comes to real estate and your IRA.
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Joe Fazchas is a Real Estate investor as well as owner and founder of http://www.iLOCAdvantage.com - a company that partners with private individuals and lending corporations nationwide for the sole purpose of financing and/or rehabbing investment properties. All of which is done using a proven "turn-key" Real Estate system...The ILOC IRA.
The ILOC IRA was created in 2004 by national Real Estate speaker, author, and investor, Adam King. To learn more on how you can obtain among the highest rates of return on your IRA, 401(K), CD, or other source of private money, simply click and visit: http://www.iLOCAdvantage.com
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