Question: We are interested in buying investment property? Currently, our IRA is not producing the income we would like. Can we use some of our IRA assets to purchase real estate? – Anna
Anna: The simple answer is yes, but its complicated and full of risks. This column can only touch on the surface; if you remain serious, you must talk with an attorney and a qualified financial adviser.
The typical real estate investor can get lots of tax benefits, such as deductions for property taxes, mortgage interest as well as the ability to depreciate the property on your annual tax return. However, if your IRA owns the investment property, you cannot take advantage of any such tax benefits. In fact, it is even more complicated, if you are over age 70 1/2 and have to start taking the required minimum distributions (RMD).
Since the annual calculation is based on the balance of your IRA at the end of each year, you actually have to get your investment appraised, so as to plug that number into your calculations.
Contrary to popular belief, you cannot invest your IRA in property you already own. Furthermore, even if the property is a “so-called” vacation home, you cannot legally use it, even occasionally. And all expenses relating to the property must be paid from the IRA.
Bottom line: It may not be worth it. Talk with your advisers about other investments that may be available for your IRA.
Question: I have a friend who owns his home outright. He is in financial difficulty but refuses to look into a reverse mortgage because an attorney friend of his told him to stay away from reverse mortgages. In my opinion, a reverse mortgage sounds like the only way for him to go since he has no wife or children to consider when…