Frequently asked questions relating to buying a house with Individual Retirement Account (IRA):
- Can I use only IRA to buy a house?
- Can I take out loans from bank with a down payment taking from IRA?
- Can this house be used for rent?
The answers to all three questions are “yes”. You can buy real estates with self-directed IRA. However, IRS has strict regulations on these questions.
Real estates purchased with IRA funds must be rented. They can neither be used as personal residence nor occasionally be used for rent. Real estates purchased with IRA funds limit your enjoyment of normal tax credit related to investment in real estate. Plus, IRS has a series of requirements and terms of trading prohibition. For example, IRA owned property is not your personal property. IRA must be owned under the supervision of a trust company. This means that regulatory fees must be paid. In the event of a prohibited transaction, the risk is that your IRA will lose your preferential deferred tax. The IRA will default to the full tax on the property. If you are less than 59 and half years old, you will pay a fine of 10% for early withdrawal.
The so-called IRA (Individual Retirement Account) refers to the US personal retirement account. The US government sets up the account for taxpayers to facilitate the investment savings for their future retirement life. In principle, when a taxpayer deposits money into an IRA account, the amount deposited does not require tax, but it is required to pay income tax at the tax level when the money is withdrawn. When using IRA to buy a house, it is absolutely necessary to follow IRS rules. Because once it is considered as receiving an early pension, the fine of the early withdrawal of the money is 10%.
Each taxpayer’s financial situation and demand are not the same, and the method of filing tax is naturally different. We recommend that you consult directly with professional accountants specialized in US tax to seek more accurate and more custom-made professional advice.
