IRA's, Retirement and Real-Estate

[leswad]

I recently purchased 80 acres with the option to buy the adjacent 150 acres when the owner decides to sell. I hope to retire to this property some day. I have heard that you can buy real-estate in your IRA, so I checked into it and found that you cannot buy property for your own use:

Indirect Benefits Rule

The purpose of the IRA is to provide for your retirement in the future. It's not intended to benefit you now. It's considered an “indirect benefit” if your IRA is engaged in transactions that, in some way, can benefit you personally—and this is NOT allowed.

Indirect Benefit Examples:

The following are just a few types of indirect benefit transactions that are NOT allowed in an IRA:

Personally using IRA property —such as using real estate purchased through your IRA— as an office, personal residence, vacation home, retirement home, or office space.

Receiving personal benefits from your IRA —such as lending yourself money from your IRA or paying yourself, or a company that you own, to do work on a home purchased by your IRA

Using your IRA funds to buy a vacation home that you or your family will use.

I wonder why this is? Seems to me a mortgage is one of the largest burdens when you retire. So why not be able to pay off that mortgage with these funds? Seems to me this would be a way to help the current housing crisis in certain areas of the country.

 

[rburg]

OK, I agree. We should also allow gun collectors to use their IRA to buy and hold nice old investment grade S&Ws.

The idea of an IRA is that you've locked the money away. I see no difference between using that money to buy a house or property and allowing you to use it any other way. Its not the idea of an IRA to finance your homestead. If you take the money out to use it now, pay your taxes!

 

[feralmerril]

There also is something called a 1031 exchange. It also has big restrictions similar to what you are trying to do. I never heard of it untill 5 years ago. I had owned 10 acres of raw mountain land in california for 30 years. I got married and we decided to sell it and move to utah. I put it up for sale. The people that made the offer also stated they were doing a 1031. I studied the rules and decided to also do it. I was looking at paying huge capital gains if we didnt. I had owned the land almost 30 years, bought the 10 acres for $10,000 and was getting a $175,000 for it!
We had just sold our house in california and bought our house here in utah and I had recently retired and got married. We bought a rental house here on a 1/2 acre. The rental cost more than our small 2 bedroom house we live in on a small lot. Sometimes it works, right now it isnt rented for the last 9 months or so. Its a lot bigger, newer house with more land than the house we live in. I really would rather be liveing in it than our primary residence!
I have been looking at the rules, and without paying a fortune in capital gains, there really is no way we can move into our rental and we own both free and clear!

 

[bk43]

A thought. The property can't be in your IRA but it's still a good idea. Buy the land with after tax dollars and let it sit there and appreciate(I know, iffy these days). Retire on the land down the road and enjoy it. IIRC, your heirs get a tax break on the appreciation anyway.

Bob

 

[feralmerril]

The way I understand a 1031 is that my wife or heirs (I wasnt married when I first bought my land) can inherit my rental, sell or live in it without paying any capital gains the way the law is presently wrote. I originaly paid 10K for the land, it sold for 175K 30 years later. Had I not rolled it into a rental after writeoffs of reality fees, property taxs etc, I estimate I would have had to pay $50,000s?
Instead I put another 20 K or so counting add on fencing etc, and bought the rental. The plan was to collect some rent while the house appriciated. It did work that way at first but the price of the house did drop back. Also it has been unrented going on a year now. We have already dropped the potential rent back a couple hundred, but we are not going to take lower yet.
In our case I retired when I was single, got married, so when I croak my wife gets none of my company retirement. I see the stratagy as giveing her a income to help get by on.