Friday, January 24, 2020
Real Estate IRAs


A disqualified person is any person who is in a position to exercise substantial influence over the affairs of the applicable tax-exempt organization at any time during the lookback period. It is not necessary that the person actually exercise substantial influence, only that the person be in a position to do so. Brothers, sisters, aunts, uncles, cousins, step-siblings, mothers-in-law, fathers-in-law and friends are not treated as disqualified persons.

Examples of Disqualified persons:

  • IRA holder and their spouse
  • Lineal descendants: IRA holder’s children, grandchildren and their spouses
  • Lineal ascendants: IRA holder’s parents and grandparents
  • Anyone that provides services to the IRA: Investment advisors, managers and fiduciaries
  • Any corporation, partnership, trust, or estate in which disqualified persons have a 50% or greater interest

GoldStar requires you to obtain a property manager for income producing properties. The property manager will need to sign our Property Manager Agreement.

No, as the account owner you cannot act as the property manager as this could be considered a prohibited transaction.

Since the IRA account is the owner of the property the contract must be titled as GoldStar Trust Co. FBO (IRA Owner Name), IRA. As the account owner, you will initial and date all documents as read and approved. GoldStar will then sign on behalf of the IRA.

Any and all expenses must be paid out of the IRA.

Examples of expenses:

  • Utilities
  • Repairs
  • Taxes
  • Mortgage Payments
  • Escrow Funds
  • Property Insurance

For any expenses not paid by the property manager please complete the Payment Authorization Form.

All income that the property generates must be submitted to GoldStar to be posted into the IRA. Rent checks should be made payable to GoldStar Trust Co. FBO (IRA Owner Name), IRA. Please make sure to include the Rental Coupon with the rent check.

Yes, through a non-recourse loan.

A non-recourse loan is a loan agreement under which the collateral securing a loan is the ultimate source of repayment, and the lender cannot hold the borrower personally liable in the event of a default. A non-recourse loan allows a borrower to finance the purchase of the real estate property. GoldStar must sign the documents on behalf of the IRA. Titling must be GoldStar Trust Company FBO: Client Name IRA.

Not all banks offer non-recourse loans. Here are a couple of banks that offer non-recourse loans, however you are free to research other lenders.
1. North American Savings Bank - 866.735.6272
2. First Western Savings Bank – 800.908.8845

UDFI applies to the gains received by an IRA that are attributable to debt. IRC Section 514 When a non-recourse loan is obtained and used in connection with an IRA purchase; it may subject the IRA to unrelated debt financed income tax. This tax must be paid by the IRA and is determined by the largest amount of debt carried by the plan for the previous 12 months. The IRA, not your personally, is responsible for paying any UBIT tax liability. GoldStar does not offer any tax advice and recommends that you consult with your tax professional.

UBIT applies to ordinary income received by an IRA if the IRA generates gross income of $1,000 or more during the tax year. IRC Section 511 “UBIT tax is due from an ordinary income producing business when such business is a flow through company not paying corporate tax”. The Self Directed IRA Handbook – Mat Sorensen

There are three common events that may trigger UBIT.

  1. The IRA buys LLC ownership in businesses that provide goods or services (e.g. restaurant, tech-company, business selling services or goods). UBIT may apply if the LLC is structured as a pass-thru entity for taxes that does not pay corporate taxes.
  2. The IRA invests in real estate investment assets that do not result in investment income. An example would be a real estate development or buying and selling a large number of short-term real estate “flips”. This will cause the assets to be considered as inventory versus investment assets and may result in taxable income.
  3. When an IRA buys real estate with a non-recourse loan. A non-recourse loan can be obtained when the IRA owner does not have sufficient IRA funds to make a real estate purchase.

Single Family, multi-family, commercial, and raw land can be held within an IRA here at GoldStar. International real estate assets are not permitted to be held within in the IRA at GoldStar.

If you do not have an established IRA with Goldstar, please click on the corresponding account application link below. We have created the following kits so that all forms necessary to establish and fund your IRA can be found in one place. To rollover your 401k or other qualified plan please contact your current custodian for their requirements as they do not always accept our paperwork.

Traditional IRA Real Estate Investment Kit
Roth IRA Real Estate Investment Kit

After your account has been funded you are now ready to make your purchase. Once you have found a real estate investment follow the Real Estate IRA Checklist to ensure that your purchase goes smoothly.

There are two types of acceptable valuation methods; Formal appraisal and Comparative Market Analysis (“CMA”). A comparative Market Analysis should be completed by a local Real Estate Broker (“Valuation Agent”).

Formal appraisals are required for the following types of transactions:

  • Roth Conversion or Recharacterization
  • Required Minimum Distribution (“RMD”) RMD is being taken.
  • Distribution In Kind - the account owner initiates a distribution in-kind from the IRA to his/her self.

CMA appraisals are required for the following types of transactions:

  • Annual valuations – required for existing real estate held in an IRA at Goldstar Trust. The CMA is required by January 10 of each year.

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GoldStar is a Trust-only branch of Happy State Bank, member FDIC

* GoldStar Trust Company does not give investment advice nor are we affiliated with any investment sponsor or retirement plan sponsor. We do not give tax or legal advice nor benefit financially from investment choices.

FDIC NOTICE: IRA and/or Bond investments represented on this website are not FDIC-insured, are not guaranteed by GoldStar Trust Company, and involve risk including possible loss of principal. If held in a GoldStar IRA or GAMMA account, the un-invested cash portion is FDIC insured up to $250,000.