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Things to Ask Your Tax Professional About Self-Directed IRA Tax Implications

Updated: Jun 22, 2022

A self-directed IRA allows owners to defer taxes until retirement age like a traditional IRA account. When using a self-directed IRA for purchasing real estate, you will not be able to claim depreciation on property held within it. Also, there may not be a way to take advantage of operating losses. A discussion with your tax professional will clarify the specifics of your situation. Another thing to consider is income. Most people think of the income produced from their IRA as investment income. Occasionally, the IRS may categorize it as business income instead.

Here are some considerations to speak with your tax advisor about:

When an IRA invests in real estate, it may be subject to UFI or "Unrelated Debt-Financed Income." This tax is usually owed if the investor purchases and sells many properties during at least half of one year. Other considerations to ask your tax professional include information about the different types of self-directed IRA accounts available to choose from. Two common forms of self-directed IRAs are the Roth IRA and Solo 401k.

The Roth IRA

With a traditional IRA, you have to pay taxes on the cash you withdraw from the account. With Roth IRAs, you invest after-tax dollars, which means earnings grow tax-free, and withdrawals from these accounts are not subject to income or capital gains tax, which means that your money can grow tax-free, and you can withdraw this money without having to pay tax on any future gains.

Solo 401k

Choosing between setting up a self-directed IRA or a solo 401(k) is important. It would help if you considered all of the differences. To be eligible to benefit from the Solo 401k Plan, investors must meet two eligibility requirements:

  • The presence of self-employment activity.

  • The absence of full-time employees.

It is vital to work with a good Certified Public Accountant (CPA) who understands the legal side of real estate investing. Getting the right tax advice is essential to making the best use of your retirement funds.


To learn more about apartments and how your money can work harder for you by investing passively in multifamily real estate, Then Book A Call Today, and we will be happy to have an initial conversation. We are looking to build a community of like-minded forward-thinking people interested in leveraging the collective power of syndications to help us co-create financial legacies through apartment investing.

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