Rules for a Self-Directed IRA with Real Estate: What You Can and Can’t Do
Investing in real estate creates powerful tax advantages and portfolio diversification. But before you buy that rental property or fund a rehab project through your IRA, you must understand self-directed IRA real estate rules.
Key Self-Directed IRA Real Estate Rules Covered in This Guide
- IRS rules that apply to real estate investments in a self-directed IRA (SDIRA), including what’s allowed and what’s not
- Prohibited transactions, such as personal use of IRA-owned property or dealing with disqualified persons
- Using non-recourse loans to help finance IRA-owned properties—and when unrelated business income tax (UBIT) may apply
- Tips for choosing the best self-directed IRA company for real estate investing—and why Advanta IRA continues to stand out
What Are the Rules for Buying Real Estate in a Self-Directed IRA?
Real estate investments in an SDIRA are subject to IRS rules that must be followed carefully to avoid penalties and taxation of IRA-owned assets. With that in mind, we created the checklist below as a basic guide that outlines key rules and considerations on how real estate works in an IRA. For best results and to avoid costly mistakes, we recommend you consult with investment and tax professionals to ensure your real estate IRA remains compliant.
The following are common questions regarding real estate in an IRA.
No. This is one of the most common questions and a major IRS compliance risk. You (or any other disqualified person) cannot live in or vacation at a property owned by your SDIRA, even part-time. Doing so would trigger a prohibited transaction, causing taxes, penalties, and the possibility of your IRA losing its tax-advantaged status.
The IRS defines you, your spouse, parents, children, and certain other family members as disqualified persons. They cannot use or benefit from the property either. Disqualified people also include investment advisors, managers, fiduciaries, and anyone providing services to your IRA. Additionally, this list includes any corporation, partnership, or trust in which a disqualified person has a 50% or more interest.
Yes, you can, but the IRS requires the use of a non-recourse loan when seeking conventional financing for IRA investments.
Using a Non-Recourse Loan to Finance a Real Estate Purchase in Your SDIRA
Want to buy real estate in your self-directed IRA but don’t have enough cash in the account? You may be able to use a non-recourse loan to leverage your purchase. This strategy allows your SDIRA to borrow money to acquire property—but there are important rules and risks to understand.
A non-recourse loan is the only type of loan allowed for SDIRA real estate investments. It means the lender’s only remedy in case of default is to seize the property itself. Your IRA—and not you personally—is the borrower. The lender cannot go after your personal assets or other IRA funds. However, unrelated debt-financed income (UDFI) comes into play,which triggers a tax on that income called unrelated business income tax (UBIT). Understanding how that works is critical.Understanding how that works is critical.
When your IRA uses a loan to invest, the portion of the income earned relevant to the percentage the loan financed is called unrelated debt-financed income (UDFI). UDFI triggers a tax called unrelated business income tax (UBIT), which applies when an IRA earns money from debt-financed property. While it doesn’t apply to all retirement accounts (e.g., solo 401(k)s are generally exempt), it’s important to plan for it.
If you’re considering using a non-recourse loan, consult both your SDIRA custodian and a tax advisor to structure the deal correctly and avoid prohibited transactions or surprise tax bills.
– Work with a lender who understands SDIRA rules
– Title the property in the name of your IRA (not in your name)
– Pay all loan payments, taxes, and expenses with IRA funds
– Learn how UDFI applies and how UBIT works
– Personally guaranteeing the loan
– Using personal funds for expenses or loan costs
– Signing your name on the loan documents; loan must be titled in your IRA’s name
– Not retaining enough cash in your IRA to pay investment expenses (maintenance, tax)
SDIRA Real Estate Rules Checklist
Rules to help you stay compliant:
- The IRA—not you personally—owns the property
- Title to the property is in the name of the IRA (e.g., “Advanta Trust Company, Inc., FBO John Smith IRA #123456”)
- All purchase costs, maintenance, and income must flow through the IRA
- You (and certain family members and other disqualified persons) cannot live in, work on, or personally benefit from the property
- Your IRA may not purchase property from or sell property to a disqualified person
- If you plan to finance any portion of the investment, your IRA must use a non-recourse loan
Common Pitfalls to Avoid
- Paying for repairs or property expenses with personal funds
- Performing sweat equity (personally maintaining the property for free)
- Paying yourself for work or repairs; you must hire a 3rd party
- Living in the property or renting to family members
- Commingling IRA and personal assets
- Using an IRA-owned property as collateral
How to Find the Best Self-Directed IRA Company for Real Estate
Not all self-directed IRA companies are equipped to handle real estate transactions smoothly. In this section, you’ll learn what to look for in a self-directed IRA company that specializes in real estate, including fee transparency, transaction turnaround times, and hands-on support for property investors.
Self-directed IRA custodians vary in fee structure and service. When comparing custodians, here’s what to evaluate:
- SDIRA fees: Are there annual account fees, transaction fees, or asset-based fees?
- Account management: Do they provide a dedicated account manager to help you navigate real estate transactions, or will you deal with a different person every time you call?
- Real estate transaction experience: Do they specialize in real estate investments?
- Responsiveness: How quickly do they process property purchases, wire transfers, rent deposits, and investment-related bills?
- Online access: Can you track property income, expenses, and balances easily?
– Is there a fee structure for real estate investors?
– How do you handle purchase and closing documents?
– What’s your timeline to fund a real estate deal?
– Can I have checkbook control?
– What is the process for receiving income and paying expenses?
Looking for a Self-Directed IRA Company for Real Estate That Checks All These Boxes?
If you are looking for a company that understands the complexity of real estate investing in a self-directed IRA, here’s why Advanta IRA stands out:
Real estate expertise backed by 20+ years of experience
Advanta IRA has over two decades of experience helping investors purchase and manage real estate through their self-directed retirement accounts. With more than $3.5 billion in assets under administration, we’ve seen it all and we’re ready to help you navigate it.
Dedicated account manager for one-on-one support
Every client is assigned a single, dedicated account manager. That means no call centers, no endless person-to-person transfers—just consistent, personalized service from someone who is familiar with your investments and account details.
Transparent and competitive fee structure
Our flat fees are easy to understand and designed to support real estate investors, without hidden charges or surprises. You’ll know what to expect every step of the way.
Manage Your Account with Ease
At Advanta IRA, we offer a streamlined client experience through our online Client Center and enhanced, secure portal. From submitting fair market values (FMVs) to setting up auto-pay for fees, you have the tools to manage your self-directed IRA efficiently. When you use the portal, you can access forms, IRS guidance, FAQs, and tax reporting resources all in one place—plus pay multiple invoices at once and securely update your payment methods anytime.
Robust education platform to keep you informed
Stay ahead of the curve with free weekly webinars, podcasts, short videos, and blogs covering everything from market trends to real estate case studies and tax rules.
Trusted team of professionals
Our team includes Certified IRA Services Professionals (CISPs), Self-Directed IRA Professionals (SDIPs), attorneys, and other credentialed experts. While we don’t give investment advice, we’ve got the knowledge to provide the administrative expertise you need to stay compliant and in control.
Ready to get started? Contact Advanta IRA today and take the next step toward building wealth through real estate in your SDIRA.
Final Thoughts: Follow the Rules, Maximize the Rewards
Real estate is one of the most powerful investments you can make inside a self-directed IRA—but only if you follow the rules. Use this checklist to guide your decisions, avoid prohibited transactions, and ask the right questions before choosing a custodian.
Additional Resources on an SDIRA with Real Estate:
The Smart Strategy of Real Estate in a Self-Directed IRA
How to Set Up an IRA to Buy Real Estate
For questions about this article or to learn more about real estate IRA rules, contact Advanta IRA today.
