What is an IRA real estate?

IRA real estate refers to physical property owned by an IRA rather than by an individual directly. Instead of holding stocks or mutual funds, the retirement
account holds a real asset that generates rental income and appreciates over time.

Standard IRAs don’t offer this. To own real property inside a retirement account, you need a self-directed IRA with a custodian specifically set up to hold and
process alternative assets. The real estate IRA custodian holds title on behalf of the account, coordinates closings, processes wire transfers, and handles the
administrative recordkeeping.

Eligible property types include single-family rentals, duplexes and small multifamily properties, commercial buildings, raw land, agricultural property,
mobile home parks, and real estate notes secured by property. The IRS doesn’t publish a list of approved real estate types for IRA ownership. It has a short
list of prohibited investments overall including life insurance and most collectibles. Real estate is not prohibited.

The ownership structure has specific requirements. The property cannot be used by the IRA owner, their spouse, or any lineal ancestors or descendants. Rent must be
collected at fair market rates. All transactions must be at arm’s length with unrelated parties. Every dollar of income flows into the IRA. Every dollar of
expense comes out of it.

The tax case for IRA real estate is strong. Rental income that would normally generate an annual tax bill compounds inside the account without that drag. When
the property sells, proceeds don’t trigger capital gains or depreciation recapture taxes in the year of sale. In a traditional self-directed IRA, taxes are deferred
until distribution. In a self-directed Roth IRA, they’re eliminated on qualifying withdrawals entirely.

For investors exploring this for the first time, working with a self-directed IRA real estate custodian to understand the process before committing to a property
purchase is the right starting point.