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Charles Koenig


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Fixing And Flipping Houses In Your IRA For Tax-Free Profits

Are you looking for a way to speed up your retirement? Growing an IRA is a great way to accelerate your retirement goals, but it can be a slow process. The power of the IRA has always been in deferring or eliminating taxes. That helps speed things up a bit, but nothing works as well as fantastic returns. So what if you could combine fantastic returns and the tax advantages of an IRA?

Flipping houses using your IRA is nothing new; however very few investors do it. Since the IRA was established back in the early 1970s, buying and selling real estate has been allowed. To take advantage of this, you would need to start with a true self-directed IRA. As owning real estate in an IRA becomes more popular, more and more self-directed administrators are popping up, giving investors many options. I would recommend getting a referral if you can; otherwise, you can simply do an internet search for “self-directed IRA.” Once you have your account established, you are ready to go.

Here are a few factors to consider as you start your process to big tax-free profits.

Take ownership in the IRA: In order to take advantage of this, your IRA needs to do the deal, not you. That means your IRA needs to be listed as the buyer on the purchase agreement. I would recommend working with your IRA administrator to help you write your first offer on a house to be sure it’s done correctly. In most cases, you will need a representative of the IRA administrator to sign your documents on behalf of your IRA.


Management: One big difference from flipping property outside your IRA to inside your IRA is that you cannot actively be involved in the investment. This means you cannot do any contractor work, cleaning or listing of the home. You must outsource everything, and simply manage the property from a distance.

Disqualified buyers: The IRS has a list of individuals who are not allowed to personally benefit from your IRA, known as disqualified persons. The list of disqualified persons includes the IRA holder, direct family members (such as parents and children along with their spouses) and fiduciaries to the IRA. Because these individuals cannot benefit, you will not be allowed to sell the property to them. Basically, you can sell the property, once the repairs are done, to anyone you want, assuming they are at arm’s length.


Financing: It is possible to finance fix-and-flips inside an IRA, which is one of the reasons this is such an attractive investment option. Using a loan to help purchase and rehab the house magnifies returns or can simply make a deal possible. It is important to note, however, that any loans you get inside your IRA will need to be nonrecourse to you individually. This means the creditor will have no recourse against you personally in the event of a default, which makes the loan a little unique. You will need to work with a lender who understands IRA lending.

Tax implications: This can be a major topic of discussion, and a confusing one, since the IRA is there to protect you from tax liability. You will definitely want to run this by your CPA. There will be a taxable event whenever you use leverage, and there could be a taxable event when you fix and flip. The tax itself should not scare you away from doing fix-and-flips in your IRA. I like to think that you only pay tax when you make money, so paying tax is positive — it means you made money! When using leverage, you will only pay a tax on the amount of profit that can be attributed to the loan. The percent of your profits that came from your own cash will remain tax-deferred, or tax-free if in a Roth.

Fixing and flipping inside your IRA can accelerate and even improve your retirement. To be successful, and to be sure you follow all the IRS rules, I recommend building a team experienced in self-directed IRAs.


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