Real Estate in an IRA — Property Investing Tax-Free

Overview

Own rental property, land, or real estate funds within your IRA. All rental income and appreciation grows tax-deferred (traditional) or tax-free (Roth). The rules are strict but the benefits are massive. Prohibited transactions and UDFI taxes on leveraged property add complexity, so working with an experienced SDIRA custodian is critical. Our Alternative IRA 101 guide covers the custodian landscape, while our tax guides explain how UBIT and UDFI affect IRA-held property. Consider pairing real estate with a Roth conversion strategy to lock in tax-free growth on appreciated assets.

Key Takeaways

• Your IRA buys the property — not you. All expenses and income flow through the IRA account.
• You cannot personally manage the property (sweat equity is a prohibited transaction) — hire a property manager.
• All mortgages on IRA-held property trigger UDFI (Unrelated Debt-Financed Income) tax on the leveraged portion.
• Cash-purchased properties avoid UDFI complications — simplest approach for IRA real estate.

Practical Tips

• Start with real estate crowdfunding (Fundrise, CrowdStreet) inside your SDIRA for easier diversification.
• If buying direct property: ensure the custodian pays all expenses from the IRA — your personal funds can't touch the property.
• Consider a checkbook SDIRA LLC for faster transactions — your IRA owns an LLC, and you manage the LLC.