It needs to be stated that there are definitely more self-directed IRA real estate rules to follow. These are just a handful of rules to get you started on thinking about real estate. Is it right for you? Do you suppose you can easily follow these rules?
Keep it separate
You and your IRA have to remain as two separate entities. Therefore, on all paperwork on your investments, your IRA is solely named. To also keep everything 100% IRS compliant, your IRA administrator helps you with documents and any sort of legal paperwork.
Funding real estate
The real estate property can be bought 100% by your IRA. Regardless if you have $50,000 in your IRA, and you need $100,000 to buy a property, the other half of the money can be loaned to your IRA. However, payments for that $50,000 loan will be paid by your IRA as well. Never by you personally.
You also cannot stay overnight in the property. Period. Even for one night. If you violate this rule, there’s a chance that your IRA could result in serious tax consequences. This includes any and all personal use for vacations by yourself, or by your family. Think of it this way: your IRA owns the property, not you personally.
As mentioned above, the property cannot be used by you or your family. So who specifically are we referring to? Yourself, obviously, your spouse, your children or parents, including any in-laws. They are what the IRS refers to as Disqualified Persons. These same people cannot conduct any business with you or your IRA, and they cannot directly benefit from the property. Say there’s a repair needed, like plumbing, and your father-in-law has a plumbing company, he, unfortunately, cannot do the work needed, because he’s disqualified.
Repairs and fees
All services must be paid through to the IRA. Again, using the plumbing example, if there’s $300 worth of plumbing repairs needed, that money must come directly from your IRA. Utilities are paid with your IRA, or if there are HOA fees due, those also must be paid for by the IRA.
The money coming in
Finally, rent deposits, rent checks, any capital gain, is all funneled back into your IRA. Because again, all the money coming in and going out goes through your IRA. Simple as that.