Holding rental properties and commercial real estate inside an SDIRA provides tax-sheltered rental cash flow, but requires strict adherence to self-dealing statutes.
Real estate remains one of the most popular alternative asset classes held inside Self-Directed IRAs. By holding rental properties or land through an IRA LLC, real estate investors can collect rental income and realize capital appreciation tax-deferred or tax-free.
1. Checkbook Control via Special-Purpose LLC
Setting up a Single-Member LLC owned entirely by your Self-Directed IRA gives you "checkbook control." Instead of requesting your custodian to cut checks for repairs, property taxes, or contractor bills, you can write checks directly from a dedicated LLC business checking account.
2. Non-Recourse Mortgages and UDFI Tax
If your IRA borrows money to acquire property, the loan must be non-recourse: you cannot personally guarantee the loan or pledge personal collateral. Furthermore, the portion of profits financed by debt is subject to Unrelated Debt-Financed Income (UDFI) tax under IRC 514.
Disclaimer: Strictly avoid disqualified persons and prohibited personal use of IRA-owned properties.