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Financial Planning / Tax Strategies
|Subject: Re: Buying Real Estate in an IRA||Date: 7/30/2002 11:34 AM|
|Author: catscanner||Number: 61049 of 125423|
Good analysis, but you may have missed the benefits of ROTH monies.
I knew that there would be too many tax rules and interpretations to overcome for me to have my tax deferred monies "own" property. I agree with the poster who said just focus on REIT type Mutual Funds; a good, safe simple route.
Back in late 2000 I felt very confident that the market was heading south (although not how much and how fast, wow!) so I researched wasy to get at my money in my ROTH IRA's. Basically, since the money in there, except the capital gains, was after tax money, I could withdraw it an not generate a taxable transaction. In addition, the tax man says that $10k can be used for "first time" home purchases. So, I took $10 from my wife's and mine ROTH acounts, put the money down on a rental property and started renting it out in 10/01.
Upon filing my 2001 taxes I found no taxable situations from the withdrwal, just a taxable income from the rent and a nice offseting tax deduction for the interest on the loan and a sweet deprectiation deduction.
I am fully aware of the "deferred" activities I've started and the other future tax liabilities from owning rental property, but I need, and still do need, some major deductions. My wife and I have over $60k taxable income (before the rental income) and with just the standard deduction we couldn't ge out of the tax trap. At the time we purchased the home (which by the way is in La Quinta CA, near Palm Springs; 3 bed/3 bath, 2 car garage, swimming pool, tile inside and stucco out, $176500.) I did not own the home I currently live in so I had no other deductions except my standard exemptions. We have since purchased our home here in Novato, Marin County (20 miles north of San Francisco), 3 bed/1 bath, 1 car garage (needed a new roof - fast!, new windows, needs a kithcen remodel and the hardwood floors are trash, having been flooded in the past; $385,000 - see, location is everything).
For those of you who can, I would recommend getting into rental property, but only in areas where there is a good demand, nice properties for sale and sufficient rental rates to cover the mortagage. Hard to find, but I was very familiar with the Palm Springs area and know/knew that I could make it work. I hired an excellent RE Agent, presented the prospective purchases to the Leasing Agent and asked him how much he could rent them out for. It really was his knowledge of the rental market for that area that closed the purchase. If he indicated that he could not rent any of our choices for more than our mortgage, we were not going to do the deal.
The Leasing Agent had a perfect tenant, signed, within 2 weeks. Well worth the 10% fee I paid ($1800). And, that's another deduction. A nice side bar is that I regularly travel to Palm Springs to visit relatives so now I can write off some of my expenses.
So, as those of you have said, it seems very difficult, but possible, to have your IRA "own" a home, but I would rather have the home outside of the IRA but have used IRA monies to get it. I now have an asset that I can sell if I need to, without any IRA problems or restrictions associated with it.
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