Yes, you can buy land with an IRA, but not through the brokerage that holds your retirement account today. Buying land with an IRA requires a self-directed IRA held by a custodian that handles real estate, enough cash inside the account to pay the full price and every expense that follows, and strict separation between you and the property so you don’t trip the prohibited transaction rules and disqualify the entire account.
Why a Regular IRA Won’t Work
Federal tax law does not prohibit an IRA from owning real estate. The limitation comes from the brokerage. Most major firms restrict IRA holdings to publicly traded assets — stocks, mutual funds, bonds — and the IRS allows them to set those limits.1Internal Revenue Service. Retirement Plans FAQs Regarding IRAs To buy land, you open a self-directed IRA with a custodian that handles alternative assets.
A self-directed IRA custodian is a passive administrator. It processes the purchase you direct, holds the deed in the IRA’s name, and files the reporting the IRS requires under Internal Revenue Code Section 408.2Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts It does not evaluate the property, recommend investments, or give advice. Every piece of due diligence — title search, environmental assessment, zoning, market analysis — is on you.
Custodian fees generally include a one-time setup charge (often $50 to $300), an annual account or per-asset fee (commonly $199 to $2,000 depending on the custodian and asset value), and transaction fees for wires, notarization, and document processing. These are separate from the property’s own holding costs.
Funding the Account
The IRA contribution limit for 2026 is $7,500, or $8,600 if you are 50 or older.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500 That’s rarely enough to buy a parcel outright, so most investors fund the account another way:
- A direct rollover from an existing 401(k), 403(b), or IRA into the self-directed IRA, which avoids taxes and early withdrawal penalties.
- A trustee-to-trustee transfer between IRA custodians, also tax-free.
- Annual contributions built up over time before you buy.
Whichever route you use, the account needs enough cash to cover the price plus a reserve for taxes, insurance, and custodian fees. Running the account dry creates a real problem. You can’t cover a property bill with personal money — that would count as an improper contribution.
The Rules That Can Disqualify Your Entire IRA
Internal Revenue Code Section 4975 bars dealings between the IRA and anyone the law treats as a “disqualified person.”4Office of the Law Revision Counsel. 26 U.S.C. 4975 – Tax on Prohibited Transactions That list includes:
- You, the account holder
- Your spouse
- Your parents and grandparents
- Your children, grandchildren, and their spouses
- Any entity you control, such as a corporation or LLC where you hold a majority stake or a management role
None of these people can buy, sell, lease, or use the IRA’s property. You cannot hunt on the land, camp on it, build a vacation home there, or run a business on it. A family member cannot lease it from your IRA. Even an indirect benefit can trigger a violation — earning a real estate commission on the IRA’s purchase, or having the IRA buy a parcel that raises the value of adjacent land you already own personally.4Office of the Law Revision Counsel. 26 U.S.C. 4975 – Tax on Prohibited Transactions
Siblings are not on the disqualified list, and neither are cousins, aunts, uncles, or friends. The statute focuses on your spouse, your direct ancestors, your direct descendants, and entities you control.
What Happens If You Violate the Rules
For most retirement plans, a prohibited transaction triggers a 15% excise tax. IRAs are treated more harshly. If you or your beneficiary engages in a prohibited transaction, the IRA loses its tax-exempt status as of January 1 of that year, and the entire balance is treated as distributed to you on that date.2Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts The full fair market value of every asset in the account becomes ordinary income, not just the piece involved in the violation. If you’re under 59½, add a 10% early withdrawal penalty on top.5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
The law also says anything you can’t do directly, you can’t do indirectly. Renting IRA-owned commercial space to your own practice rent-free counts as furnishing IRA facilities to a disqualified person. Personally guaranteeing a loan the IRA takes out counts as an extension of credit between you and the plan. Either one blows up the whole account.4Office of the Law Revision Counsel. 26 U.S.C. 4975 – Tax on Prohibited Transactions
Money In, Money Out
Every dollar related to the property has to move through the IRA in both directions. Property taxes, insurance, maintenance, and any improvement costs come out of the account’s cash. You cannot write a personal check for a property bill. Doing so is treated as an improper contribution and can jeopardize the account’s tax status.
The same rule runs the other way. Any income the land produces — grazing fees, timber sales, mineral royalties, or lease payments from an unrelated third party — must go directly back into the IRA. Pocketing that income personally is a distribution, taxable and subject to the 10% penalty if you’re under 59½.5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Borrowing to Buy: Non-Recourse Loans and UDFI
If the IRA doesn’t have enough cash for the full price, it can borrow, but only with a non-recourse loan. Non-recourse means the loan is secured by the property alone. If the IRA defaults, the lender can take the land but cannot come after you personally or the rest of your assets. You cannot sign a personal guarantee, because that guarantee itself is an extension of credit between you and the IRA and would be a prohibited transaction.4Office of the Law Revision Counsel. 26 U.S.C. 4975 – Tax on Prohibited Transactions
Because the lender bears more risk, non-recourse loans usually require down payments of 40% to 55%, and the IRA has to hold cash reserves besides. The custodian signs the loan documents on behalf of the IRA. You don’t sign personally. Non-recourse lending is a niche market, and rates run higher than conventional mortgages.
Borrowing also brings a tax the reader needs to know about. When an IRA uses debt to buy property, part of the income and part of any eventual gain on sale are subject to Unrelated Debt-Financed Income tax, or UDFI. The taxable slice tracks the ratio of the outstanding loan to the property’s value.6Internal Revenue Service. Unrelated Business Income From Debt-Financed Property Under IRC Section 514 Borrow 50% and roughly 50% of the income and sale proceeds are taxable.
UDFI falls under the Unrelated Business Income Tax rules. The IRA must file IRS Form 990-T if gross unrelated business income hits $1,000 in a year.7Internal Revenue Service. Unrelated Business Income Tax The tax uses trust income tax rates, which in 2026 reach 37% at just $16,000 of taxable income. The IRA pays the tax, and it pays the mortgage, out of its own funds. As the loan balance drops, the debt-financed percentage drops with it. Buy the land entirely with cash and UDFI doesn’t apply at all.
Traditional or Roth
Both a Traditional and a Roth self-directed IRA can hold land. The tax outcome is very different.
With a Traditional IRA, contributions may be deductible now, the land grows tax-deferred, and everything that eventually comes out is taxed as ordinary income rather than at capital gains rates. Required minimum distributions start at age 73, or 75 if you were born after 1959.
With a Roth IRA, you pay tax on the contribution up front, but qualified growth and distributions are tax-free — including the gain when the land eventually sells. Roth IRAs also have no lifetime RMDs, which removes the cash pressure that can force a Traditional IRA holder to sell property at the wrong moment. The trade-off is no deduction on the contribution, and converting a Traditional IRA to a Roth triggers income tax on the converted amount.
For land that appreciates substantially, the Roth advantage can be significant because the entire gain escapes tax.
How the Purchase Closes
The point of the closing mechanics is to keep the IRA — not you — as the legal buyer from start to finish.
A certified appraisal establishes fair market value; for undeveloped land these typically run $1,000 to $3,000. You submit a Direction of Investment form telling the custodian to release funds, with the property’s legal description, price, and seller. Any earnest money comes from the IRA, not from your personal account. The deed is titled in the custodian’s name for the benefit of your IRA, usually formatted as “Custodian Name, FBO [Your Name], IRA #[Account Number].” The custodian signs the closing documents and wires the funds directly to the title company or escrow agent. You generally do not sign in your personal capacity, because doing so could imply personal ownership. After closing, the recorded deed goes back to the custodian for the IRA’s records.
The whole process takes longer than a conventional land purchase because of the custodian’s review steps. Sellers unfamiliar with self-directed IRAs sometimes need reassurance the deal will close, so build extra time into the purchase agreement.
Ongoing Costs and Annual Reporting
Holding land inside an IRA carries recurring costs — property taxes, insurance, and the custodian’s annual fees — and every one of them comes out of the account’s cash. If the account runs short, you can only add money within the annual contribution limit. You cannot backfill from personal savings.
Each year the custodian reports the fair market value of every asset in the IRA on IRS Form 5498, using Code D in Box 15b for real estate.8Internal Revenue Service. Form 5498 – IRA Contribution Information The form is due to the IRS by June 1 of the following year.9Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498 You give the custodian a current valuation, which may mean a new appraisal or a written opinion from a qualified professional. Inaccurate values can create IRS problems and complicate future distributions.
Getting the Land Back Out
Exiting is harder than clicking sell on a stock. Three basic options exist.
The IRA can sell the property to an unrelated buyer, and the proceeds stay in the account. For a Traditional IRA the gain remains tax-deferred; for a Roth, tax-free. This is the cleanest exit because the account ends up holding cash.
You can take an in-kind distribution, where the custodian retitles the property into your personal name. A certified appraisal sets the value at transfer. For a Traditional IRA the full appraised value is taxed as ordinary income; for a Roth, a qualified distribution triggers no tax at all.
Or the land passes to your named beneficiary at death, following the applicable distribution rules for inherited IRAs.
The RMD Cash Crunch
A Traditional IRA holder must start taking required minimum distributions in the year they turn 73, or 75 if born after 1959. Each RMD is due by December 31, though the first has a grace period until April 1 of the following year. If the only asset in the account is a parcel of land and there’s no cash to draw from, the choices are unpleasant: sell the land quickly, possibly at a loss; refinance to raise cash; or take part of the property as an in-kind distribution and pay income tax on the distributed value.
Two moves prevent this before it happens. Keep a cash reserve inside the IRA alongside the land. Or hold the land in a Roth IRA, which carries no lifetime RMDs.