Self directed Individual Retirement Accounts are best known for offering a range of assets that can give them the best returns. This flexibility allows the account holder to diversify their retirement portfolio. Here’s the good news, tax lien certificates and tax deeds are among the types of real estate investments to choose from, so the impressive returns achieved on these assets can be realized in your IRA—effectively tax-free!
Using a self directed IRA to invest in tax lien certificates is a simple and quick way to make tax free retirement income. If you are familiar with the nature of tax liens, you know that they are usually redeemed quickly and income is gained by the interest rate you charge the property owner until the lien is satisfied. Since payments flow directly into your IRA account, all funds through redemption are tax deferred and available to use on your next investment of choice.
Tax deeds require considerably more effort and money than tax lien certificates because you take ownership of the property, but can be a great source of retirement income if bought through an IRA. The advantage to buying and selling real estate via this route is that all gains from the sell are generally tax-free. Whereas the gains through purchasing real estate with personal funds would be subject to capital gain tax.
Whether you rehab the property, sell it outright, or rent it; all expenses MUST be paid by the IRA and all revenue from selling or rent MUST go back into the IRA; the use of any personal funds is strictly prohibited. The same rule applies to all expenses involved in clearing up a title on a tax-deeded property by using a certification service like Cleartosell. It is imperative to carefully plan before investing and be sure enough money is in your account to cover maintenance, taxes, attorney’s fees, or any other emergency expense that might occur.
There are very specific and strict rules involved when using a self-directed IRA to buy real estate. It is well advised to conduct thorough research and seek professional counsel before diving in. Consult with a self directed IRA custodian such as Equity Trust, Pensco Trust Company, or IRA Resources, Inc for more information on using your IRA to invest in tax deed and liens.
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