Real Estate IRA: Rules, Prohibited Uses, and How a Property Deal Is Structured

A real estate IRA is a self directed IRA that owns property instead of, or alongside, stocks and funds. The IRS rules are the same as for any individual retirement account.

Real estate transactions inside a retirement account follow specific rules, and a mistake can cost the account its tax benefits.

Below: how real estate investing works inside the account, who the IRA can’t deal with, how expenses get paid, and when debt can trigger UBIT. New to the account type? Start with our self-directed IRA guide.

Sources: the Internal Revenue Code, IRS Publications 590-A, 590-B, and 598, and federal court decisions.

A small white wooden model house beside a closed leather portfolio, a brass key, and a short stack of plain coins on a walnut desk, suggesting a real estate IRA.
In a real estate IRA, the IRA owns the property, not you.

What is a real estate IRA?

There is no special account type with that name. The term describes a traditional or Roth IRA whose custodian allows alternative assets, where the IRA buys real estate as an IRA investment.

The IRS says there is no list of approved investments. Most custodians offer only stocks, bonds, and funds, so to invest in real estate you need a self directed account with a custodian that accepts it. That custodian must be a bank or another financial institution the IRS has approved as a nonbank trustee.

Can real estate be put in an IRA?

Yes. Nothing in the internal revenue code bars an IRA from owning real estate property. The code bans life insurance and collectibles, not land or buildings, so residential, commercial, and agricultural real estate are all allowed as investments if the custodian accepts them.

The catch: you can’t move a house you already own into the IRA. That would be a sale between you and the IRA, one of the prohibited transactions in section 4975.

How to purchase real estate with a self directed IRA

You and your IRA are two separate entities. The IRA, not you, is the buyer, owner, landlord, and bill payer.

Moving IRA funds into a self directed IRA

You fund the account with a contribution, a transfer from another IRA, or a 401(k) rollover. For 2026, the contribution limit is $7,500, or $8,600 at age 50 or older. Next to most real estate prices, that’s small, so many investors use a transfer or rollover. See our IRA contribution limits guide.

Directing the IRA custodian to buy real estate

You find the investment property and do your own due diligence. Then you direct the IRA custodian to purchase real estate with all the funds coming from the IRA, never your own money.

The custodian holds the asset but, as the SEC and state regulators warn, does not evaluate the quality or legitimacy of any investment. Compare providers on our self-directed IRA custodians page.

Some owners invest through an IRA-owned LLC instead. That adds its own risks, covered in our checkbook IRA guide. Digital assets are covered in our crypto IRA guide.

Ways to invest in real estate: investment property, land, and mortgage notes

Ways to invest in real estate through a self directed IRA include:

  • Rental property, residential or commercial.
  • Raw land held for investment purposes.
  • Mortgage notes secured by real estate, where the IRA is the lender.
  • Real estate partnerships or LLCs alongside other investors.

These are direct purchases or loans. Publicly traded REIT shares are different: any brokerage IRA can hold them. Like any other IRA investment, the property must benefit only the IRA.

A glass jar of soil, a wooden survey stake tied with orange string, and a brass magnifying glass on a weathered table, suggesting due diligence on raw land for an IRA.
The custodian will not vet the deal, so the due diligence is yours.

Property owned by the IRA: paying property expenses

Property taxes, insurance, repairs, and management fees are paid from IRA funds.

Rental income and sale proceeds are paid back to the IRA. Owning property this way means the IRA owns the profits and the bills.

Paying a bill with personal funds, or depositing rent into your own bank account, mixes your money with the IRA’s. Depending on the facts, that can be use of IRA assets by a disqualified person or an extension of credit to the IRA, both listed in section 4975(c)(1).

Keep cash in the account so the investment can cover vacancies, repairs, and taxes.

A small wooden model house next to a stack of plain coins, a closed green ledger, and a pencil on an oak desk, suggesting paying property expenses from IRA funds.
Property taxes, repairs, and insurance are paid from IRA funds.

Who pays taxes?

Both traditional and Roth IRAs can be self-directed IRAs. In a traditional IRA, income generated by the property is tax deferred. In a Roth IRA, qualified distributions are tax free.

You don’t pay taxes on rent each year. But because the IRA owns the property, you can’t deduct its property taxes or mortgage interest on your personal return.

Prohibited transactions when owning real estate in an IRA

The IRS defines a prohibited transaction as any improper use of your IRA by you, your beneficiary, or any disqualified person.

Publication 590-A adds that the risk may be increased when your IRA holds nonpublicly traded assets or assets you directly control. Real estate investments are often both.

Who is a disqualified person?

Under section 4975(e)(2), disqualified persons include these family members and others:

  • You, as a fiduciary of your IRA.
  • Your spouse.
  • Your ancestors, such as parents, grandparents, and great grandparents.
  • Your lineal descendants, such as children and grandchildren, and their spouses.
  • Service providers to the IRA.
  • Entities 50% or more owned by those people.

Siblings and cousins are not on the statutory list. That doesn’t make deals with them safe if the benefit flows to you indirectly.

IRS rules for a vacation home or rental property

You can’t buy property for personal use, present or future, with retirement account money. That rules out a vacation home you plan to visit, an office rented to your business, and a rental leased to your daughter.

A model beach cottage on a linen cloth with a brass key set apart behind a clear glass panel, suggesting no personal use of a vacation home owned by an IRA.
You and your family can’t use property the IRA owns, even for a weekend.

Self dealing and sweat equity

Section 4975(c)(1)(C) lists furnishing goods, services, or facilities between the IRA and a disqualified person. Doing the repairs yourself, or hiring your son’s company, fits that description. Unrelated contractors should be paid from the IRA.

The IRA can’t buy property from, or sell it to, you or any other disqualified person. You also can’t borrow from it or use it as security for a loan. These IRS regulations apply to every self directed IRA.

What happens after prohibited transactions?

The account stops being an IRA as of the first day of that year. Under section 408(e)(2), you’re treated as receiving all its assets at fair market value. You may owe income tax and, if under 59½, a 10% additional tax. That happened in Ellis v. Commissioner (T.C. Memo. 2013-245). See our guide to IRA prohibited transactions.

Financing with a non recourse loan

An IRA can borrow to buy real estate, but you can’t personally guarantee the loan.

In Peek v. Commissioner (140 T.C. 216), the Tax Court held that personal guaranties of a loan to an IRA-owned company were indirect extensions of credit. So financing to buy real estate in a self directed IRA needs to be a non recourse loan secured only by the property. Few lenders offer these to IRA investors. Review all real estate transactions involving debt with a tax professional.

A wooden model house on a stack of blank paper beside a closed brass padlock on a dark desk, suggesting a non-recourse loan secured only by the property.
A personal guarantee of the IRA’s loan can be a prohibited transaction.

Leverage can trigger UBIT

Rent is normally excluded from unrelated business taxable income. Debt changes that. Under section 514, the share tied to acquisition debt is debt-financed income. The section 514(c)(9) real estate exception covers some qualified retirement plan trusts, not IRAs.

If gross income from the unrelated business is $1,000 or more, the IRA’s trustee must file Form 990-T, and the IRA pays the taxes at trust rates. See our UBIT in an IRA guide.

Sell property and take distributions

When a self directed IRA sells property, the gain stays in the account. Withdrawals follow the usual rules for a traditional or Roth IRA.

At age 73, a traditional IRA must start required minimum distributions. A building can’t be split easily, so plan for cash or an in-kind distribution. Roth IRA owners face no RMDs during their lifetime.

Each year the custodian reports the account’s fair market value, so you’ll need a current value for the property owned.

Benefits and drawbacks of a self directed IRA investment in real estate

Possible benefits:

  • Tax deferred growth, or tax free growth in a Roth.
  • Investment diversification beyond stocks and bonds.
  • Control over which investment property the IRA buys.

Drawbacks:

  • Illiquid: real estate investing ties up cash, and a sale can take months.
  • No personal use and no sweat equity.
  • Financing limits and possible UBIT.
  • Custodian and appraisal fees.
  • One mistake can disqualify the whole IRA.

See our guide to IRA investment options for other ways to invest.

How much will $10,000 in an IRA be in 20 years?

It depends on returns, which no one can promise. As illustrative math only: $10,000 growing at an assumed 5% a year for 20 years, with no fees or withdrawals, would be about $26,533. At an assumed 7%, about $38,697. Real estate investment returns vary, expenses and fees reduce them, and investors can lose money.

Is a self directed IRA right for your real estate investments?

Before you use retirement savings to hold real estate, review your wider financial picture and ask:

  • Is this purely for investment purposes?
  • Will the IRA have cash for property expenses?
  • Can I live with a non-recourse loan and possible UBIT?
  • Can I meet RMD rules with an illiquid asset?

Staying informed about these specific rules matters. Real estate investing through an IRA can fit some financial goals, but only if you treat the IRA and yourself as strangers.

Written by Tim Schmidt and reviewed for tax and account accuracy by Sean Webster, CPA. Last reviewed November 10, 2026 (America/New_York). This guide is for general education. It is not tax, legal, or investment advice, and it is not a recommendation to buy or sell any asset or to open any account. IRAInvesting.com is not a custodian, dealer, broker-dealer, or investment adviser. Before you act, talk with a licensed tax professional, attorney, or financial adviser who can review your situation. Alternative assets can be illiquid and volatile, and a directed custodian does not vet or endorse your investment. Investing involves risk, including the possible loss of principal.