When An Individual Retirement Account Owns Property

Many people are surprised to find out that one of the allowable investments for an Individual Retirement Account is property. You cannot invest in other tangible assets or life insurance, but the IRA can be listed as the owner of property. For many people, placing rental properties under the name of their retirement account is an excellent way to generate a stable income for the account. Rental income is not taxable if it is returning to the IRA. There are some downfalls to owning property this way, as some normal tax deductions are not allowed.

Property is considered a valid investment for an IRA. Rental income and sales income are not immediately taxable which makes it an attractive source of income for the account. It is important to consider the stability of the housing and rental market before making this investment. The collapse of the housing bubble greatly diminished many people’s savings in retirement accounts. Having yours vested in property could but the account funds at risk should the bubble rise and burst again. It is also important that you talk with a knowledgeable accountant about the phrase “immediately taxable.” When receiving distributions, there may be a slightly higher level of taxation to pay on those incomes.

Unlike ownership by an individual, partnership or corporation, the depreciation, maintenance, mortgage and other costs associated with property are not tax deductible to the IRA. The IRA does not file taxes as a separate entity the way a business does so there is no allowance for a deduction. The person who holds the gold ira rollover cannot take a deduction on the costs of owning the property either. For all intents and purposes, it is simply a cost out with no balance deduction going back in.

You should also investigate the costs of any special insurance needed to protect the IRA from any claims by tenants or others. It is important to know, especially on a state level, if an Individual Retirement Account can be deemed liable for injury or property damage. Make sure to consult a lawyer, accountant and insurance specialist about this issue as it will depend a great deal on the geographic location of the property, not the registered location of the IRA.

Property is not a high return investment such as stocks. It is mostly a low risk investment with a great potential for long term gain. Consider carefully the projected trend of the housing market in the area you are looking to invest in before committing to a purchase to protect your retirement funds.