Can I Use My IRA to Buy an Investment Property?

You can use an IRA to buy investment property, but not through the account at your regular brokerage. Federal law allows IRAs to hold real estate, yet most major custodians limit their accounts to publicly traded securities like stocks and mutual funds.¹ To buy a property, you need a self-directed IRA held with a custodian that handles alternative assets, and you have to follow strict rules that prevent you or your family from personally using or benefiting from the property. Break those rules and the IRS can treat your entire account balance as distributed to you in a single year.

The Self-Directed IRA You Actually Need

A self-directed IRA is a retirement account that permits non-traditional investments, including real estate, private businesses, and precious metals. The IRS does not use the term “self-directed” in the tax code; it simply permits investments that most custodians choose not to offer.¹ To buy property, you open an account with a custodian that specializes in these assets and then direct that custodian to purchase the property on behalf of the IRA.

The custodian handles administrative tasks: holding title, filing IRS reports, and processing payments. It does not evaluate the deal or give you advice. You pick the property, negotiate, and manage the investment strategy. You also bear full responsibility for researching property condition, zoning, and market value before buying.

Custodian fees vary. Some charge a flat annual fee, others charge per asset, and some use a percentage of total account value. Expect several hundred dollars or more per year for a real estate holding, on top of transaction fees for purchases and sales. Every property-related payment (purchase price, repairs, property taxes, insurance) must flow through the custodian from the IRA’s own funds. If money comes from your personal bank account instead, the IRS can treat it as an excess contribution or a prohibited transaction.

Traditional or Roth for Real Estate

Both traditional and Roth self-directed IRAs can hold real estate, but the tax outcomes differ. With a traditional IRA, rental income and sale proceeds grow tax-deferred, and you pay ordinary income tax on every dollar you eventually withdraw. With a Roth IRA, qualified withdrawals (including property appreciation and rental income) come out completely tax-free, provided you are at least 59½ and the account has been open for at least five years.

Roth IRAs also carry a practical advantage: they are not subject to required minimum distributions during the owner’s lifetime.² You can hold a rental property in a Roth indefinitely without being forced to sell or distribute it. Traditional IRA holders must begin taking distributions at age 73, which creates a liquidity problem when the account’s main asset is a building.

The 2026 annual IRA contribution limit is $7,500, or $8,600 if you are 50 or older.³ Because most properties cost far more than that, people typically fund a self-directed real estate IRA by rolling over an existing 401(k) or traditional IRA rather than making new annual contributions.

What Kinds of Property Qualify

A self-directed IRA can hold almost any type of real estate bought solely for investment purposes. Common choices include single-family rentals, multi-unit apartment buildings, commercial properties, raw land, and farmland. You can also invest indirectly through private real estate funds, syndications, or notes secured by real estate.

The restriction is not about the type of property. It is about how the property is used. Anything held in the IRA must be treated purely as an investment. You cannot buy a vacation home you plan to use, a house for your child to live in, or a commercial space for your own business.

Prohibited Transactions and Disqualified Persons

This is the rule that catches people. Federal law bars certain dealings between your IRA and “disqualified persons.” Disqualified persons include you (the account holder), your spouse, your ancestors (parents, grandparents), your lineal descendants (children, grandchildren), the spouses of your lineal descendants, and any entity in which these individuals hold 50 percent or more ownership.⁴

A prohibited transaction is any direct or indirect exchange of property, lending of money, or providing of services between the IRA and a disqualified person.⁴ In practical terms:

You cannot live in the property, vacation there, or let any disqualified person use it, even for a single night.
You cannot mow the lawn, paint a wall, fix a leaky faucet, or perform any repair or maintenance yourself. Neither can your spouse, children, or parents.
You cannot hire your child as the property manager or pay your spouse’s contracting company to do renovations.
You cannot pay a repair bill, property tax, or insurance premium out of your personal checking account. Every expense must come from the IRA.
All rental income must go directly to the IRA. Rent checks cannot be deposited into your personal account.

What Happens if You Break the Rule

Consequences are severe. The account loses its tax-exempt status as of January 1 of the year the violation occurred, not the date of the violation itself. The IRS then treats the entire fair market value of all assets in the account as distributed to you on that date.⁵ You owe ordinary income tax on the full value of the property and any cash in the account. If you are under 59½, you also owe an additional 10 percent early-distribution tax on the taxable amount.⁶ A minor mistake, such as personally fixing a broken window, can produce a six-figure tax bill.

Managing the Property Without Breaking the Rules

Because you cannot perform services on IRA-owned property, you need a third-party property manager who is not a disqualified person. The manager finds tenants, signs leases, collects rent, coordinates repairs, and deposits income directly into the IRA. You can provide high-level direction, such as setting a target rent range, but the manager handles execution.

Residential property management fees generally run between 5 and 12 percent of monthly rent, though some managers charge a flat monthly fee instead. This is an ongoing cost the IRA must cover, so factor it in before buying. Repairs, maintenance, and contractor work also go through the manager and get paid from IRA funds. If the IRA lacks cash for an expense and annual contribution limits won’t cover the shortfall, you may need to arrange a distribution or another funding source, which adds complexity.

Financing With a Non-Recourse Loan

If your IRA does not have enough cash to buy a property outright, it can borrow, but only through a non-recourse loan. Non-recourse means the lender’s only collateral is the property itself. If the IRA defaults, the lender can seize the property but cannot go after your other IRA assets or personal assets. You personally cannot guarantee, co-sign, or pledge outside assets on the loan, because doing so creates a prohibited transaction.

Non-recourse lenders typically require a larger down payment than conventional mortgages, often 40 to 50 percent of the property value, plus cash reserves in the IRA equal to six to twelve months of mortgage, tax, and insurance payments. Interest rates run higher than standard mortgage rates. Fewer lenders offer these products, so shopping around takes more effort.

Tax on Debt-Financed Income

IRAs are generally exempt from income tax, but that exemption has a limit. When an IRA uses borrowed money to buy property, a portion of the rental income and any eventual sale profit becomes taxable under the unrelated debt-financed income (UDFI) rules.⁷ The taxable share is proportional to the percentage of the property financed by debt.⁸ As the loan is paid down, that percentage shrinks. Once the loan is fully repaid, no UDFI tax applies.

The IRA must file IRS Form 990-T and pay tax on this income if gross unrelated business income reaches $1,000 or more in a year.⁹ The tax is calculated at trust income tax rates, which in 2026 reach a top bracket of 37 percent on taxable income above $16,000.¹⁰ The IRA also gets a $1,000 specific deduction against unrelated business taxable income.¹¹ If you buy entirely with IRA cash and no loan, UDFI does not apply.

Annual Valuation and Reporting

Custodians must report the fair market value of every asset in your IRA as of December 31 each year on IRS Form 5498. For publicly traded holdings, the number is automatic. For real estate, someone has to determine the value. Custodians are responsible for making sure alternative assets are valued at fair market value annually, and real estate is specifically identified as a category that requires this reporting.¹²

In practice, custodians require the account holder to arrange and pay for a professional appraisal or qualified valuation each year. Budget several hundred dollars per property annually for this. The valuation also matters if you take a distribution, because the taxable amount depends on the appraised fair market value at the time.

How the Purchase Works

Buying property through a self-directed IRA involves more paperwork and longer timelines than a typical real estate transaction. The general process:

Open a self-directed IRA with a custodian that handles real estate, and fund it through a rollover, transfer, or contributions.
Identify an investment property. Neither you nor any disqualified person can be on the other side of the transaction as the seller.
Submit a direction of investment form instructing your custodian to purchase the specific property. This typically lists the property address, purchase price, and seller information.
Title the purchase in the IRA’s name, not yours. The contract usually shows the custodian’s name “FBO” (for benefit of) your name and IRA account number. Putting your personal name on the contract can create a prohibited transaction or require costly legal corrections.
Route all funds through the IRA. Earnest money, down payment, and closing costs come directly from the IRA through the custodian, which wires funds to the title company or escrow agent.
Let the custodian sign the closing documents. Because the IRA owns the property, the custodian signs the deed and settlement statement on the IRA’s behalf. You review the documents but do not sign them yourself.
After closing, the title company records the deed with the county showing the IRA as the legal owner, and the custodian stores the recorded deed and closing files.

Build in extra time. Custodians often need several business days, sometimes weeks, to review documents, check for prohibited-transaction issues, and process wire transfers. Sellers and their agents may not be familiar with IRA purchases, so communicating the timeline early helps avoid delays that kill deals.

Required Minimum Distributions and Liquidity

If you hold real estate in a traditional IRA, you must begin taking required minimum distributions by April 1 of the year after you turn 73. Roth IRAs require no distributions during the owner’s lifetime, which is one reason some investors prefer them for illiquid assets like real estate.²

Satisfying an RMD from a traditional IRA that holds mostly real estate can be tough. You have a few options:

Use other IRA cash. If the account has enough cash from accumulated rent, you can take the RMD as a cash distribution without touching the property.
Take an in-kind distribution. The custodian transfers a fractional or full ownership interest in the property directly to you. This requires a current appraisal, since the distribution is a taxable event based on fair market value. The custodian re-titles the property (or a share of it) into your name and reports the distribution on Form 1099-R.
Sell the property. You can direct the custodian to sell and distribute the required amount in cash. Sales take time, so plan well ahead of the December 31 RMD deadline.

Missing an RMD triggers a 25 percent excise tax on the amount you should have withdrawn. Because real estate cannot be liquidated quickly, keep enough cash in the IRA to cover at least a year or two of RMDs if you are approaching or past age 73.

1
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
2
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
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Internal Revenue Service. Retirement Topics – IRA Contribution Limits
4
Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
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Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
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Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
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Internal Revenue Service. Unrelated Business Income From Debt-Financed Property Under IRC Section 514
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Office of the Law Revision Counsel. 26 USC 514 – Unrelated Debt-Financed Income
9
Internal Revenue Service. Instructions for Form 990-T
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Internal Revenue Service. 2026 Form 1041-ES Estimated Income Tax for Estates and Trusts
11
Office of the Law Revision Counsel. 26 USC 512 – Unrelated Business Taxable Income
12
Internal Revenue Service. Instructions for Forms 1099-R and 5498