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What are the IRS rules for holding/managing directly owned real estate?

Directly owned real estate held in your self-directed retirement account must comply with IRS regulations under IRC §4975. These rules are designed to ensure the property is held strictly for investment purposes and not for personal benefit.

Quick links: Prohibited transactions | Income & expenses | Property management | Valuations 

 

Prohibited transactions

IRS rules prohibit the accountholder and any disqualified persons from using or benefiting from the property in any way while it is held in a tax-advantaged retirement account. The property must be held for investment purposes only.

  • You may not buy from, sell to, or otherwise transact with yourself or a disqualified person, including a spouse, lineal ascendants (parents or grandparents), lineal descendants (children, grandchildren, or their spouses), or a business you own or control.

  • You or a disqualified person may not live in, vacation in, or otherwise use the property

  • You or a disqualified person may not perform work on the property, including repairs, maintenance, or improvements

  • You or a disqualified person may not receive compensation or any other benefit for managing the property

Quick links: Prohibited transactions | Income & expenses | Property management | Valuations 

 

Income and expenses

All income and expenses related to the property must flow through your self-directed account. 

Income

  • Rental income must be deposited directly into your STRATA account using the Deposit Certification form.

  • If rental income is received by the renter directly by STRATA, they must clearly identify the STRATA account and the investment property the income should be applied to. 

Expenses

  • All expenses (taxes, insurance, improvements, debt payments, etc.) must be paid from your STRATA account. You may not pay expenses out-of-pocket or with a personal credit card.

  • To avoid any processing delays, ensure your STRATA account maintains sufficient uninvested cash to cover all property-related expenses. 

  • To process payments, submit supporting documentation (such as invoices or tax notices) along with a completed Expense Payment Authorization form.

 

Property management

STRATA does not provide property management services. You are responsible for selecting and overseeing an independent third-party property manager, who handles day-to-day operations, including rent collection and property maintenance. 

  • 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.

Quick links: Prohibited transactions | Income & expenses | Property management | Valuations 

 

Insurance requirements

If you carry liability insurance on the property:

  • The insured must be listed as:
    STRATA Trust Company Custodian FBO (Accountholder Name) IRA (Account #)

  • Premiums must be paid directly from your STRATA account

  • The property cannot be added to your personal insurance policy

Quick links: Prohibited transactions | Income & expenses | Property management | Valuations 


 

Valuation requirements

The IRS requires an updated fair market value (FMV) for each real estate asset:

  • Annually and for any taxable event (e.g., in-kind distribution or Roth conversion)

  • Supporting documentation is required 

Additional guidance:

  • Approved third-party websites (e.g., Zillow, Realtor.com, Redfin) may be accepted for annual updates. Learn more about annual requirements and timelines.

  • If the value changes significantly (typically 50% or more) and/or for any taxable event, a signed formal valuation from a qualified real estate professional (broker or appraiser) is required.

  • County tax appraisals are not accepted for any valuation updates.

  • Valuation fees (if applicable) must be paid from your STRATA account using an Expense Payment Authorization form. 

Key reminder

All aspects of the investment — ownership, income, expenses, and documentation — must remain separate from your personal finances to maintain the tax-advantaged status of your self-directed retirement account.