Can You Work on a Real Estate Property Your IRA Owns?

In this video, John Bowens, Equity Trust’s National Education Specialist, answers the commonly asked question, Can you work on a real estate property your IRA owns?”

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The general rule of thumb is that you can do the desk work, but should refrain from doing any physical sweat equity (sweeping floors, changing lightbulbs, replacing cabinetry, etc.).

Tax Code 4975 clearly states that disqualified persons cannot furnish goods, services, or facilities to the property owned by one’s IRA. Physical sweat equity is considered a service whereas it is not as clear with desk work.

Those considered disqualified persons are yourself, your spouse, children, grandchildren, parents, grandparents, or businesses you own and operate.

You cannot transact between your IRA and a disqualified person– that is a prohibited transaction. Prohibited transactions can result in the loss of your IRA, distribution taxes, a 10% early withdrawal penalty (if under 59 1/2), and/or a 20% accuracy-related penalty.

Doing physical sweat equity could also be considered an excess contribution to your IRA and would come with penalties associated.

Your responsibilities as a property manager determine whether or not you can manage the property. You may choose to hire a property management company to do administrative and physical work for you to take advantage of the tax benefits that come with it.

Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional.

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