Real estate is one of the most popular ways to invest your money. It has been time-tested and is a known and trusted way to build income and sustain wealth. When looking to maximize your financial power and minimize your tax risk, some people consider using a self-directed IRA in real estate transactions. While it sounds great, you need to be aware of a few things regarding using a self-directed IRA in real estate.
Advantages of Using a Self-Directed IRA to Buy Real Estate
The immediate advantage is tax deferral and tax-free growth. In buying a piece of property using retirement funds like a self-directed IRA and later selling it at a higher price than what you purchased it for, the financial appreciation or gain would be tax deferred. If you used your personal funds to purchase the same property and later sold it at a higher price, the financial appreciation or gains would be subjected to federal and, depending on what state the property is in, state income tax as well. The practice of using a self-directed IRA to buy real estate provides investment diversification, such as purchasing raw land, as well as the ability to earn additional funds if you used the funds to purchase rental property.
Buyer Beware
When considering utilizing a self-directed IRA in real estate transactions, you need to consult a professional regarding your tax liability. It’s different from state to state so you should consult a professional in your state. Also, remember purchasing property requires maintenance, even if it’s just land that needs to be periodically mowed. You want to make sure your self-directed IRA for real estate has enough to cover the expenses associated with the ongoing maintenance of the property.
To learn more about how a self-directed IRA in real estate can benefit you, visit the Mountain West IRA website.
