You can own real estate in an IRA, but not through the brokerage account where you hold your mutual funds. You need a Self-Directed IRA with a custodian that handles physical property, and once the IRA owns the property, every dollar of expense, rent, and financing has to move through the account rather than your personal bank. The IRS restricts who can use the property, who can work on it, and how you pay for it. Break those rules and the entire account can lose its tax-advantaged status in a single taxable year.
The Kind of IRA You Need
Standard IRAs at large brokerages limit you to publicly traded investments. To buy a building, you open a Self-Directed IRA, which is a traditional or Roth IRA held by a custodian that permits non-traditional assets. The authority sits in IRC Section 408, which defines an IRA as a trust and allows non-bank custodians that meet IRS administrative requirements.1Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts The statute never says “stocks only.” It lists what an IRA cannot hold: life insurance contracts and collectibles such as artwork, rugs, gems, and alcoholic beverages. Real estate is not on that list.
A Self-Directed custodian handles paperwork, tax reporting, and titling. They do not give investment advice. You pick the property; they execute the transaction and keep records. Setup fees typically run $200 to $500, and annual custodian fees for accounts holding real estate range from roughly $200 to $2,000 depending on the custodian and asset complexity.
Annual IRA contributions are small compared with a property price. For 2026, the contribution cap across all your traditional and Roth IRAs combined is $7,500, or $8,600 if you are 50 or older.2Internal Revenue Service. Retirement Topics – IRA Contribution Limits Most investors fund a Self-Directed IRA by rolling over an existing 401(k) or IRA, which has no dollar limit as long as the rollover follows IRS rules.
What Property Qualifies
The eligible range is wide. An IRA can buy undeveloped land, single-family rental homes, condominiums, duplexes and larger multi-family buildings, commercial office space, retail, and industrial warehouses. The IRS does not restrict property type. It restricts how the property is used and how the transaction is structured.
The Rules That Protect the Tax Status
IRC Section 4975 is the statute that keeps you from using retirement funds for your own benefit today instead of in retirement.3Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions Your IRA cannot buy property from you, sell property to you, lend you money, or let you use its assets personally. The same restrictions extend to “disqualified persons,” a group that includes:
- Your spouse, parents, grandparents, children, grandchildren, and their spouses.
- The IRA custodian, any fiduciary of the account, and anyone providing services to the plan.
- Any corporation, partnership, or trust in which disqualified persons own 50% or more.
The IRS lists specific examples of prohibited transactions involving IRAs: borrowing money from the account, selling property to it, using the account as collateral for a loan, and buying property for personal use with IRA funds.4Internal Revenue Service. Retirement Topics – Prohibited Transactions
Indirect benefits trip people up more than obvious self-dealing. Renting IRA-owned property to your adult child, letting your spouse’s business lease the commercial space, or pledging the IRA property as collateral for a personal loan all qualify as prohibited transactions. If the IRS can trace a personal benefit back to you or a disqualified person, the transaction fails no matter how many entities sit in between.
No Personal Use, No Sweat Equity
IRA-owned property is held exclusively for investment. You cannot use it as a home, a vacation getaway, a home office, or a place to store personal belongings, and no disqualified person can use it either. A single overnight stay at an IRA-owned rental cabin is enough to create a problem.
You also cannot personally mow the lawn, paint walls, fix plumbing, or perform any maintenance on the property. Under Section 4975, providing services to the plan is a prohibited transaction. Your labor has economic value, and contributing it amounts to an unreported contribution of services. Repairs and property management must be handled by unrelated third parties and paid with IRA funds. Property management companies typically charge 5% to 12% of monthly rent for residential oversight, with additional fees for tenant placement and lease renewals.
What a Violation Costs
The consequences are unusually harsh. Under IRC Section 408(e)(2), if the IRA owner or a beneficiary engages in a prohibited transaction, the account stops being an IRA as of January 1 of that taxable year.5Office of the Law Revision Counsel. 26 US Code 408 – Individual Retirement Accounts The IRS treats the entire account balance as if it were distributed to you on that date. For a traditional IRA, that means ordinary income tax on the full fair market value. If you are under 59½, you also owe the 10% early withdrawal penalty. A $300,000 IRA lost to a prohibited transaction can easily generate a combined tax bill exceeding $100,000.
How Money Moves Through the Account
Every dollar tied to the property must flow through the IRA. Property taxes, insurance premiums, HOA dues, repair bills, and contractor invoices are paid from the IRA’s cash balance. You cannot put a broken furnace on your personal credit card and reimburse yourself later. The IRS treats that as a disqualified person furnishing goods or services to the plan.
Income runs the same route in reverse. Rent checks are made payable to the IRA (or its custodian) and deposited into the account. Sale proceeds stay in the account. If rental income lands in your personal bank account by mistake, the IRS can treat it as a taxable distribution.
The practical challenge is keeping enough cash inside the IRA to cover vacancies, unexpected repairs, and seasonal expenses like property tax bills. If the account runs out of cash and you cannot cover a bill without injecting personal funds, you face a choice between a prohibited transaction and letting the property deteriorate. Experienced investors keep a cash reserve equal to at least several months of expenses inside the account before buying.
The Checkbook IRA LLC
Waiting for the custodian to process every payment can be slow, especially for time-sensitive repairs. One workaround is to form a single-member LLC owned entirely by the IRA. The IRA funds the LLC, the LLC opens its own bank account, and as the LLC’s manager you can write checks directly for property expenses.
Setting this up requires filing articles of organization with a state, obtaining a separate EIN, and drafting an operating agreement that identifies the IRA as the sole member and confirms compliance with IRS prohibited transaction rules. State filing fees range from about $35 to $500. All the same prohibited transaction rules apply to the LLC, and you still cannot pay yourself for managing the property. The checkbook gives you speed, not freedom from IRS restrictions.
Financing: Non-Recourse Loans and the UBIT Trap
If the IRA does not have enough cash to buy outright, it can borrow, but only through a non-recourse loan. A conventional mortgage requires a personal guarantee, and that guarantee is itself a prohibited transaction because a disqualified person would be providing a financial benefit to the plan.
A non-recourse loan is secured only by the property. If the IRA defaults, the lender can seize the property but cannot pursue you personally or reach other IRA assets. Because no disqualified person guarantees the debt, the IRS does not treat it as a prohibited transaction. The trade-offs: higher interest rates, larger down payments, and fewer lenders. Underwriting is based on the property’s income potential rather than your personal credit.
Debt inside the IRA triggers a tax most owners do not expect. Under IRC Section 514, income attributable to debt-financed property is unrelated debt-financed income (UDFI) and is subject to unrelated business income tax (UBIT).6Internal Revenue Service. Unrelated Business Income From Debt-Financed Property Under IRC Section 514
The taxable share is a ratio: the average mortgage balance during the year divided by the property’s average adjusted basis. If the IRA owes $120,000 on a property with an adjusted basis of $200,000, 60% of the net rental income and 60% of any gain on sale is subject to UBIT. The statute caps this ratio at 100%.7Office of the Law Revision Counsel. 26 US Code 514 – Unrelated Debt-Financed Income
IRAs pay UBIT at trust tax rates, which compress fast. For 2026, the 37% top rate hits at just $16,000 of taxable income, compared to over $640,000 for individual filers. Once the IRA’s gross unrelated business income reaches $1,000 or more, the custodian must file IRS Form 990-T and pay the tax from the IRA’s funds.8Internal Revenue Service. Instructions for Form 990-T As the IRA pays the mortgage down, the debt-to-basis ratio shrinks and UBIT exposure drops. When the loan is paid off, UDFI goes away.
Buying the Property: Step by Step
The closing process looks different from a normal real estate purchase.
- Open and fund the Self-Directed IRA with a custodian that handles real estate. Move money in through a rollover from an existing retirement account or through contributions.
- Identify the property yourself. The custodian will not recommend investments.
- Submit a direction-of-investment form to the custodian instructing them to purchase it. This authorizes release of funds for the earnest money deposit and closing costs.
- Title the deed in the IRA’s name, not yours. A typical title reads something like “ABC Trust Company FBO [Your Name] IRA,” identifying the retirement plan as the legal owner.
- Close through the custodian. The custodian signs the deed and settlement documents as the authorized party; you do not personally sign the purchase contract. Funds wire directly from the IRA to the closing agent.
- Line up a third-party property manager before or shortly after closing, since you cannot personally maintain the property. Management fees are paid from the IRA.
If you are borrowing, the non-recourse loan is made to the IRA, not to you. Lender and custodian coordinate on the loan documents. Getting financing arranged before you make an offer saves time at closing, because non-recourse loans take longer to process than conventional mortgages.
Annual Valuation and Reporting
Real estate has no closing price. The custodian is required by the IRS to report the fair market value of every IRA asset as of December 31 each year on Form 5498.9Internal Revenue Service. Instructions for Forms 1099-R and 5498 The custodian files Form 5498 by June 1 of the following year, but most custodians want your valuation documentation much earlier, often by January or February.
Acceptable documentation is typically a formal appraisal by a licensed appraiser or a broker price opinion. Professional appraisals generally cost $300 to $600 for a single-family home and more for multi-family or commercial property. It is a recurring annual cost paid from the IRA. Undervaluing the property can create problems, especially when calculating RMDs from a traditional IRA. If the IRS believes the reported value is too low, it can challenge the valuation and assert that distributions were insufficient.
Liquidity and Required Minimum Distributions
Real estate inside a retirement account is illiquid, and that creates two problems stock investors never face.
First, if you need cash from the IRA, you cannot sell a fraction of a building. You either sell the whole property, take an in-kind distribution of it, or find liquidity elsewhere in the account. An in-kind distribution means the custodian retitles the property from the IRA into your personal name. The custodian reports the fair market value on Form 1099-R, and for a traditional IRA you owe ordinary income tax on that full value. A $250,000 appraisal becomes $250,000 of taxable income in a single year.
Second, traditional IRA holders must begin taking required minimum distributions at age 73.10Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs If the IRA holds nothing but a rental property and a small cash balance, you may not have enough liquid funds to cover the RMD. Missing the full RMD triggers a 25% penalty tax on the shortfall. Planning years ahead is essential. Some investors hold a mix of real estate and liquid assets in the same IRA so the liquid portion can cover distributions. Others convert to a Roth IRA before RMD age, since Roth IRAs have no lifetime RMD requirement for the owner.
Total Cost of Holding Real Estate in an IRA
Owning property through a Self-Directed IRA costs more than owning it personally, because every service you might normally do yourself has to be outsourced and every fee has to come from the account. A realistic picture includes:
- Custodian fees of $200 to $500 for setup, plus $200 to $2,000 annually depending on the custodian and number of assets.
- Property management at 5% to 12% of monthly rent, plus placement fees for new tenants.
- Annual appraisal of $300 to $600 or more for Form 5498 reporting.
- LLC formation of $35 to $500 in state filing fees, if you are using the checkbook structure, plus operating-agreement drafting and ongoing state compliance.
- UBIT at trust tax rates up to 37% on the debt-financed portion of income, plus the cost of filing Form 990-T, if the IRA carries a mortgage.
These costs come out of IRA funds. If the cash balance cannot absorb them, you are stuck choosing between selling the property at a bad time and triggering a prohibited transaction by adding personal money. Investors who do well with IRA real estate tend to buy properties whose rental income runs well above carrying costs, leaving room for vacancies and surprises without draining the account.