Important Reminders for Self-Directed Real Estate IRA Transactions

Although self-directed IRAs provide investors with more freedom to invest there are rules you must follow according to the IRS to ensure that your real estate transactions meet IRA requirements. When getting ready to purchase a property please keep in mind: 

  • If your IRA will not own 100% of the property, the property title and closing documents should reflect STRATA Trust Company Custodian FBO (Accountholder Name) IRA (Account #) as to an undivided interest of ____%.
  • If the property will be debt-financed, only a non-recourse note is acceptable. The property must be the only collateral for the loan, and all payments must be made from your IRA. You cannot guarantee the loan personally or make payments on the loan out of pocket. In addition, debt-financed property in an IRA may be subject to Unrelated Business Taxable Income. For more information, please consult your tax advisor.
  • After the initial purchase, you will be required to obtain an appraisal every year and provide it to STRATA. In addition, a new appraisal will be required for any taxable event such as an in-kind distribution of the property or Roth IRA conversions.
  • As your IRA custodian, STRATA will hold the original recorded deed and the title policy in safekeeping. Please ensure that you or your property manager mails this documentation to STRATA as soon as possible after the closing.
  • Any property maintenance expenses (property taxes, utility bills, etc.) or property improvement costs (contractor invoices) must be paid directly to an unrelated third party from your IRA account rather than by you personally. You cannot pay for expenses out of pocket or charge expenses to a credit card and then request to be reimbursed by your IRA.
  • When setting up utilities or updating tax records with the county, please use your mailing address (or your property manager’s address) to ensure you receive the bills in a timely manner.
  • Please provide  STRATA’s Expense Payment Authorization form along with a copy of the expense invoice to direct STRATA to pay expenses from available cash in your IRA. For example, if the roof on the property needs to be replaced, you will obtain a written bid/quote from a contractor and forward that invoice to STRATA along with the completed Expense Payment Authorization Form. STRATA will then send a check or wire funds to the contractor directly from your IRA. Please be sure all invoices contain the applicable property address.
  • All rental income must be deposited into your STRATA account. If your property manager collects rent and pays expenses, the remaining proceeds should be sent to STRATA at least quarterly along with an itemized accounting of income received and expenses paid.
  • If you choose to carry liability insurance on the property, the named insured must be STRATA Trust Company Custodian FBO (Accountholder Name) IRA (Account #), and the annual premium must be paid directly to the insurance company by your IRA. You cannot add the IRA property to your personal homeowner’s policy or list your IRA as an additional insured.

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