An Easy Guide For How To Sell Real Estate From Your Self-Directed IRA
A self-directed IRA (SD-IRA) gives you the opportunity to have more control over your retirement investing. One of the most popular investments inside an SD-IRA is real estate. Knowing how to navigate the ins and outs of SD-IRA investing in real estate is important to make sure you are able to generate growth in your portfolio and avoid tax penalties.
Investing in real estate with a self-directed IRA is a great way to turn a profit, but only if you know exactly how to capitalize on your returns. If you have purchased properties through your SD-IRA, there may come a time when you’ll want to sell them.
Maybe you’ve purchased a fixer-upper that is ready to be flipped for a quick profit or you’ve held on to a property that’s appreciated substantially over the years. No matter the situation, selling the property requires following some steps to make sure the transaction is compliant.
Listing Your SD-IRA Real Estate Investment
As you prepare the property for listing, you will probably need to take care of repairs or other necessities to make sure you can get the most bang for your buck. An important note here: because the property is owned by your IRA and not you as an individual, you cannot complete these repairs yourself. Everything must be conducted through a third party. This means contracting the work. Sweat equity is not allowed when dealing with real estate in an SD-IRA.
The process of getting your investment property listed is very similar to listing a personal property. The key difference is that you and your agent need to ensure all paperwork is in the name of your IRA. Luckily, this should be pretty straightforward and everything should already be titled correctly.
After you have verified everything is in the name of your IRA, you can list the property and begin receiving offers. Once an offer has been made and you’ve negotiated terms and contingencies, the process becomes nearly identical to selling personal property.
The Offer and Vesting
After a buyer has expressed interest in the property and made an offer, it’ll be time to finalize the contract. Since the property is owned by your SD-IRA, your administrator will sign on behalf of the IRA if you decide to accept the terms of the offer.
The key thing to remember during this stage is that the contract needs to be vested in the name on the deed (your SD-IRA, not yours).
If the property is not vested in the name of your IRA, then you need to work quickly to get the information changed. It’s not a deal-breaker, but it could slow down the sale. It’s best to make sure that all documentation is in the name of your SD-IRA before going too far in the sale process.
Have a Team of Experts to Support You
Transactions always go more smoothly when you have a team of experts to support you. When it comes to investing in real estate with a self-directed IRA, this means having a real estate agent familiar with self-directed IRA investing and an administrator for your SD-IRA.
Real Estate Agent
Having a real estate agent familiar with self-directed IRA investing in real estate is essential, especially as you’re preparing to list the property. This professional will be able to help you make sure everything is done in the IRA’s name and that all sale documents are correct.
If you have a real estate agent who is unfamiliar with real estate investing in the context of an SD-IRA it could lead to slowdowns or worse, significant tax penalties and trouble with the IRS.
SD-IRA Administrator
There are many tax implications to be aware of when selling a real estate investment from a self-directed IRA and it can get confusing. A qualified administrator for your self-directed IRA can serve as an additional eye and provide the expertise that will help you navigate the selling process and make sure you don’t inadvertently commit any prohibited transactions.
Prohibited Transactions to Avoid
Like any investment, investing in real estate with a self-directed IRA comes with rules and regulations. Breaking any of these rules has serious tax implications. This is why it’s so important to rely on the knowledge and expertise of an experienced custodian for your SD-IRA, especially when you’re ready to sell your real estate investments. When that time comes, there are two main rules to be aware of:
1. Disqualified Persons
A disqualified person is someone that cannot be involved in any direct or indirect deals with the IRA. The IRA should be thought of as a separate entity, and it cannot do business with you, any of your family members, any entity owned 50% or more by a disqualified person, or a service provider of the IRA.
2. Personal Benefit
You cannot use your self-directed IRA for personal benefit. What this comes down to is that any profit generated from investing in real estate with a self-directed IRA must go back into the IRA.
As an example, profit from a rental property owned within your IRA must go back into your IRA, not your personal bank account. These profits should not be thought of as income but as investment funds.
In the same way, profits generated from selling a real estate investment from your self-directed IRA would go back into the IRA and would not be available as liquid assets.
To summarize the most important aspects of SD-IRA real estate investing:
Make sure as you’re listing the property that everything is in the name of the IRA
Make sure you have an experienced team supporting you
Make sure to avoid prohibited transactions
Sell Your Real Estate Investment With Chicago Trust Administration Services
At Chicago Trust Administration Services, we know that investing in real estate with a self-directed IRA is exciting and potentially complicated all at the same time. We’re here to answer your questions and make sure your self-directed IRA real estate investments are compliant every step of the way.
To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
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*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.