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Author: octanemaniac Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76079  
Subject: buying residential homes in IRA Date: 2/4/2007 10:39 AM
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Can you buy residential property (single family home) with an IRA and rent it to close family (parent/sibling)? If so, what are the considerations and can anyone recommend a good IRA custodian that will service this type of investment?

Thanks!
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55580 of 76079
Subject: Re: buying residential homes in IRA Date: 2/4/2007 11:51 AM
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The short answer:
You can buy real estate in an IRA, but you can't rent it to close relatives. And there's a few "gotchas" to watch out for.

Here's a post I wrote a while back with the details:
http://boards.fool.com/Message.asp?mid=17596619

--Peter

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Author: octanemaniac Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55581 of 76079
Subject: Re: buying residential homes in IRA Date: 2/4/2007 12:10 PM
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Thanks, Peter.

I'd heard conflicting opinions about who you could rent the property too. In my case, I have enough accumulation to purchase the property outright. I was hoping to use the IRA to purchase retirement homes for both my elderly mother and disabled vet brother. Thanks again for the info.

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Author: BruceCM Big red star, 1000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55582 of 76079
Subject: Re: buying residential homes in IRA Date: 2/4/2007 2:56 PM
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NO.

The IRS has clarified this as 'any personal use' being regarded as a prohibited transaction. This means that if you use the house even one time, the money from the IRA used to purchase the property would be considered to be a distribution and taxed as ordianry income.

I completely agree with Peter's well thought out assessment. If you'd like to read another assessment from a tax expert, take a look at Kaye Thomas's discussion of holding RE in an IRA as a great way to 'nuke your IRA', at

http://fairmark.com/rothira/real-prohibited.htm

Oh, and per Peter's discussion, loans are permitted within an IRA, but they must be of the non-recourse variety, or personal loans, meaning the IRA itself cannot be used as collateral for the loan. However, for those who hold investment RE in their IRA, this is about the only way I can think of to manage a liquidity crisis.

BruceM



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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55583 of 76079
Subject: Re: buying residential homes in IRA Date: 2/4/2007 3:04 PM
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www.pensocotrust.com

If that link is wrong google pensco

Owning rentals inside an IRA can be a huge nightmare.

You can drive your car with your toes-that doesn't mean its a good idea.

Ditto owning rental inside an IRA.

Tread carefully.

buzman

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Author: pedorrero Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 55623 of 76079
Subject: Re: buying residential homes in IRA Date: 2/6/2007 10:00 AM
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I thought I'd found a big-time tax dodge along the same lines, back around 2001. It's somewhere here on the Fool, but I'm too lazy to find the link.

Essentially, my idea then was for my IRA to purchase my condo, and then I'd rent it from my IRA. Sadly, Congress anticipated my brilliant idea and had said "no."

In a related note, I've sometimes wondered whether (say) two friends, living in identical condos, could trade units and rent from each other. As long as it were done at market rates, I guess it'd be legal. I wonder if there would be tax advantages, or would they cancel each other out?

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