Loan on Self directed IRA property?

2 Replies

Can I pull money out of a property that is in a self directed IRA? The property is free and clear and I need funds for a rehab project. I am over 59 1/2 so should I take the property out the IRA or borrow against it or how can I free up the equity? Thank you.

@Margaret Buoncora

What you are proposing is potentially possible, but likely messy and unproductive.

The IRA owns the property. You cannot personally take out a loan based on the IRA held property. That would violate IRS self-dealing rules.

The IRA could do a cash-out refinance of the property and create cash liquidity within the IRA. This is commonly done to free up additional capital for the IRA to make additional investments, and can make sense when everything stays within the IRA.

If you were to then pull any of that money out, which you can as someone over age 59 1/2, you would pay tax on any distributed amount. In addition, the IRA would now be producing debt-financed income on the mortgaged property, which would subject the IRA to some minimal taxation.

You would want to sit down with an experienced CPA to analyze whether using debt inside the IRA to free up capital for you to take an IRA distribution makes sense.

While the numbers may work out OK, the complexity factor is pretty significant.