Real estate tax

Retirement investing

You can own real estate inside a retirement account, and the prohibited-transaction rule is stricter than intuition: one wrong move is not a mistake you fix, it is an account you lose.

You can own real estate inside a retirement account. Most people never learn this, and the ones who do often wreck the account learning how. A self-directed IRA or solo 401(k) can hold property, lend money, and invest in deals, and the growth compounds tax-deferred or tax-free. The power is real. So is the tripwire.

The tripwire is the prohibited-transaction rule, and it is stricter than intuition. You cannot use the property, cannot do the repairs yourself, cannot let family live there, cannot personally guarantee the loan. Cross the line and the IRS can treat the entire account as distributed, taxes and penalties on everything, not just the deal. These pages cover the accounts, the checkbook-LLC structure that gives you control, the Roth conversion math, and the prohibited-transaction traps in the detail they deserve, because this is an area where a single wrong move is not a mistake you fix, it is an account you lose.

Inside this hub

Self-directed IRA

A self-directed IRA can own real estate directly, letting your retirement account be a landlord. The tax-sheltered growth is real, but two traps, a debt-financing tax most investors never see coming and a prohibited-transaction rule that can vaporize the whole account, make it a structure to enter carefully.

Solo 401(k)

For a self-employed real estate investor, the solo 401(k) beats the self-directed IRA on almost every axis: roughly ten times the contribution room, and a debt-financing exemption that lets you leverage real estate inside the account without the UDFI tax that hits an IRA. If you qualify, it is usually the better vehicle.

Roth conversions

Converting a traditional retirement account to a Roth means paying tax now so all future growth is tax-free. For a self-directed account holding real estate, the move has a special edge: convert when the property's value is temporarily low, pay tax on that low value, and let the recovery and all future appreciation grow tax-free forever.

Prohibited transactions

This is the rule that can vaporize a self-directed retirement account in a single move. Deal with yourself or your family, use the property personally, or do your own repairs, and the IRS can treat the entire account as distributed, taxing all of it at once. There is no bright line and no benefit of the doubt.

Checkbook LLC

A checkbook LLC puts a bank account between you and your retirement custodian, so you can buy a property or pay a contractor by writing a check instead of waiting days for custodian approval. It is how serious self-directed real estate investors move at market speed, and it multiplies both the control and the prohibited-transaction risk.

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