Do you pay capital gains on self-directed IRA?

No, not at the time of sale. This is one of the most significant tax advantages of holding real estate inside a self-directed IRA.

When your IRA sells a property, the proceeds flow back into the account. No capital gains tax is triggered in the year of sale. No depreciation recapture.
The full amount reinvests and continues compounding inside the account.

Compare that to personally owned investment real estate. A property held more than one year and sold creates long-term capital gains tax (0%, 15%, or 20%
depending on income level), plus 25% depreciation recapture on all depreciation previously taken, plus any applicable state capital gains tax. On a property with
$120,000 in gain and meaningful depreciation, the combined tax bill can easily run $35,000 to $55,000. None of that happens inside a self-directed IRA at the
time of sale.

In a traditional self-directed IRA, you pay ordinary income tax when you eventually take distributions in retirement. The gain from a property sold
decades earlier is not taxed then; it’s taxed proportionally as you draw down the account. In a self-directed Roth IRA, qualifying distributions are completely
tax-free, meaning all appreciation and rental income accumulated over the life of the account comes out with no federal income tax.

There is one exception to watch for. If your IRA used debt financing specifically a non-recourse IRA loan to purchase property, a portion of the income
attributable to the leveraged amount may be subject to Unrelated Business Income Tax (UBIT) under IRC Section 511. The debt-financed income rules under IRC Section
514 can create a taxable event even inside an otherwise tax-exempt IRA. A CPA familiar with SDIRA tax rules should model this before you close on any leveraged
IRA real estate purchase.