How fast can Quest Trust Company purchase an investment?
We pride ourselves in our fast processing time of 24-48 hours. Please note that our processing begins when we have received the completed Direction of Investment form as well as any supporting documentation (example: properly vested sales contract).
How can I take funds out of my IRA to buy Real Estate, without having to pay taxes and penalties?
When using your IRA for the purposes of purchasing Real Estate, you are not actually taking the funds out. Similar to how your IRA can purchase an asset of a stock, your IRA can also purchase an asset of Real Estate. Quest Trust Company specializes in helping our clients purchase RE through their retirement accounts.
What are the differences between buying real estate personally and buying real estate with my IRA?
a) Title of the property: When using your IRA for RE investments it must be titled in the name of your IRA. When using a Quest Trust Company, the title will read “Quest Trust Company, Inc. FBO (Your Name) IRA (Account number)”
b) Funds- When your IRA is used to purchase an asset, the funds must come from the IRA. This includes any expenses that are related to the investment. Likewise.,, any gains or earnings must go back to the IRA.
c) Signatures- Because investments are made in the name of the IRA, Quest Trust Company is actually the one that signs the documents.
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Can my IRA purchase Real Estate I currently own?
No. Although the IRS has very few restrictions on the types of investments which are permissible in an IRA, there is a list of “disqualified persons” who are prohibited from dealing with your IRA or benefiting from its investments. The list of disqualified persons includes you, your spouse, your parents, your children, their spouses, certain business partners and key employees and persons providing services to your plan, among others. Interestingly enough, the definition of disqualified persons does NOT INCLUDE non-lineal descendants or ascendants, so if the transaction is an arms length transaction your IRA may be able to transact business with your brother or sister, aunt or uncle, cousins, etc. However, you should be aware that there is an element of danger in transacting business with any person in whom you may have an interest which affects your best judgment as a fiduciary of your IRA, as this could be considered to be a prohibited transaction.
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Are the gains or income taxable from IRA Real Estate investments?
The answer is NO – in most cases. If an IRA buys Real Estate and then sells it at a profit, all income generated while it was held in the IRA and all the gains resulting from sale WILL be either tax-deferred (traditional IRA) or possibly tax-free (Roth IRA), IF the purchases were all cash with IRA funds.
However, if the IRA purchased Real Estate that is debt financed, the IRA could be subject to taxation. The tax applied is called Unrelated Debt Financed Income tax or UDFI tax.
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Can my IRA make loans to others who want to buy Real Estate?
Yes, your IRA may loan to any person, as long as they are not a disqualified person. These loans involving Real Estate are generally referred to as Promissory Notes. They are usually secured by the deed to the property that serves as collateral for the loan if the borrower fails to meet the loan obligations. For more Information visit our Promissory notes webpage.
Can I partner with my IRA or with other peoples IRAs?
Your IRA can always partner with other people individually or with other people’s IRAs. Under certain circumstances you personally may be able to partner with your IRA. However, the burden of proving that you received no impermissible benefit from your IRA’s participation in the investment will be on you if the IRS ever questions the transaction. The transaction still must be an arms-length transaction, and the investment remains subject to the same restrictions as if the entire investment were in your IRA. In general it is better to separate your IRA’s investments from your own investments.
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I only have a small IRA. How can I buy real estate?
There are at least 4 ways you can participate in real estate investment even with a small IRA. First, you can wholesale property. You simply put the contract in the name of your IRA instead of your name. The earnest money comes from the IRA. When you assign the contract, the assignment fee goes back into your IRA. If using a Roth IRA, this profit is tax-free forever! Second, you can purchase an option on real estate, which then can be either exercised, assigned to a third party, or canceled for a fee. Third, you can purchase property in your IRA subject to existing financing or with a non-recourse loan from a bank, a hard money lender, a financial friend or a motivated seller. Profits from debt-financed property in your IRA may incur unrelated business income tax (UBIT), however. Finally, as mentioned above, your IRA can be a partner with other IRA or non-IRA investors.
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Can an IRA buy debt-financed property?
Yes. Any debt must be non-recourse to the IRA and to any disqualified person. An IRA may have to pay UBIT on its profits from debt-financed property. In general, taxes must be paid on profits from an IRA-owned property that is debt-financed, including profits from the sale or disposition of the property, in the same proportion that it had debt. For a simplified example, if the IRA puts 50% down, then 50% of its profits above $1,000 will be taxable. Although at first this sounds terrible, in fact leverage can be an extremely powerful tool in building your retirement wealth. The same leverage principle applies inside or outside of your IRA. You can do more with debt-financing than you can without it.
Can I use my IRA funds to buy a foreclosed property?
Yes, IRAs can indeed purchase foreclosures. However, you will want to be aware of the specific foreclosure purchase process. Contact our office for more information!
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If I am a Realtor, can I receive a commission for property bought or sold by my IRA?
No, for the same reasons stated in the prior answer. Anything that creates a possible conflict of interest with your IRA is likely to be a prohibited transaction. Why take money that is tax-free or tax-deferred and pay taxes on it now anyway?
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Can I cut the funding check directly to the seller and then get reimbursed?
No, because this is an IRA owned property, all of the funds must come directly from the IRA. You may complete a Direction of Investment form that will instruct Quest Trust Company as to where to send the funds.
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Can I receive a fee for managing property owned by my IRA?
No. The prohibited transaction rules are intended to make sure that you receive no current benefit from your IRA other than as the beneficiary of the IRA. Investments must be arms-length and exclusively for the benefit of your IRA.
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Can I live/work/vacation in a property my IRA owns?
No, this would be considered a prohibited transaction. For a complete guide to Prohibited Transaction, click here.
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Can I collect the rents for my IRA rental property?
Yes and No. You can have the renters forward the rent checks to you, BUT made payable to your IRA. They cannot be made out to you, nor can you deposit them, even if you plan to reimburse your IRA. If you do collect the rent checks, make note, and forward the check over to Quest Trust Company.
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If you have tenant mail the rent check directly to Quest is a deposit form required? If yes, does the tenant sign the deposit form?
Can I get reimbursed for Expenses used to investigate and due diligence of a property that I want to Purchase? Same goes for after purchase If there is a plumbing emergency and we don’t have time to wait for a Quest Check from the IRA.
Can I fix/repair stuff myself at my IRA-owned property (for free)?