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Home > Blog > How To Manage Property Owned by Your IRA

How To Manage Property Owned by Your IRA

Investing in property with your Self-Directed IRA can often be a wise and profitable decision. However, it also requires investors to be diligent about their decision-making process. IRA property management has several rules and regulations you must understand and be sure to follow, and failing to do so can lead to fees and legal consequences.

hammer, ruler, and other construction tools laying on a table to display the concept of managing property owned by your IRA.

Permissible and Impermissible IRA Property Management Actions

Self-Directed investors are familiar with the concept of Prohibited Transactions – a set of restrictions which define how the investor may interact with his/her property. The obvious ones are easy:

  • Don’t live in it.
  • Don’t let linear relatives provide paid services.
  • Don’t pay for upkeep out of your own pocket.
Investors planning how they are going to fix and flip their real estate investment, which will cause the Self-Directed IRA LLC to be subject to UBIT.

On the flip side, Self-Directed IRA investors also know that they may function as the non-compensated manager of the property in order to ensure its viability and financial health. The area between these two parameters, however, touches upon a gray area of the law and is frequently debated among legal experts.

If you use a self-directed retirement plan, it's usually best to err to the side of caution and take a more conservative approach as to which interactions are permitted. Sweat equity (i.e., non-compensated services that are physically provided to an asset) is clearly not allowed. This would even include something like quickly cutting the grass. It is unclear, however, whether the IRS treats this as an impermissible non-cash contribution to an IRA, a Prohibited Transaction, or both. In either case, it is prohibited and could possibly incur legal ramifications for your account.

On the permitted side of IRA property management, legal experts consider management duties to be an acceptable responsibility for the account holder.

Miniature house on a table next to the property's keys to indicate an investment in real estate with a Self-Directed IRA.

Such duties include hiring workers and contractors, keeping the books, and writing checks from the LLC's checking account. An easy way to think about this is that the investor may donate "desk" power but may not be involved in any physical upkeep.

If any questions arise as to the permissibility of a specific action, it is always best to ask a qualified expert.

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