Purchasing investment property with a self-directed IRA (SDIRA) lets you hold real estate inside a tax-advantaged retirement account — but the rules are strict. The IRA owns the asset, not you. Every dollar of income and expense flows through the account, and prohibited transactions can disqualify the entire IRA.
This guide walks through acquisition workflow, financing limits, and tax traps. Full SDIRA overview: what is a self-directed IRA.
Step-by-step: buy rental property with your IRA
| Step | Action |
|---|---|
| 1 | Open SDIRA with a custodian that allows real estate |
| 2 | Fund the account (contribution, rollover, or transfer) |
| 3 | Identify the property — no personal use |
| 4 | Direct custodian to purchase in IRA name: “[Custodian] FBO [Your Name] IRA” |
| 5 | All closing costs paid from IRA cash |
| 6 | Hire property manager — you cannot self-manage or do sweat equity |
| 7 | All rent deposited to IRA; all expenses paid from IRA |
The IRS prohibited transaction rules bar dealings between the IRA and disqualified persons — you, your spouse, ancestors, descendants, and entities they control.
Cash purchase vs. leveraged IRA acquisition
All-cash IRA purchase is simplest — no UDFI tax, no non-recourse lender required. The IRA must hold enough cash for purchase, closing costs, reserves, and early operating expenses.
Leveraged IRA purchase uses non-recourse debt — the lender’s only remedy is the property. Conventional mortgages with personal recourse do not qualify.
| Factor | All-cash | Non-recourse leverage |
|---|---|---|
| UDFI tax | None | On debt-financed income portion |
| Down payment | 100% from IRA | 30–40% from IRA typical |
| Rates | N/A | Higher than personal investment loans |
| Lender pool | N/A | Private lenders, select portfolio lenders |
Jaken Finance Group offers non-recourse hard money on select SDIRA files for fix-and-flip and bridge — not DSCR inside the IRA. For stabilized rentals, use an LLC on DSCR at 5.75%–10.5%. IRA structure: hard money for self-directed IRA.
UDFI tax on leveraged IRA real estate
When an IRA borrows to buy property, the debt-financed portion of rental income may trigger Unrelated Debt-Financed Income (UDFI) tax. If 60% of the purchase was debt-financed, roughly 60% of net rental income could be taxable inside the IRA.
File Form 990-T when UDFI exceeds $1,000. Work with a CPA experienced in SDIRA taxation before levering a retirement-account acquisition.
Checkbook-control IRA-LLC workflow
Many investors use an IRA-LLC for faster transactions:
- IRA owns 100% of a newly formed LLC
- LLC holds title and a bank account
- You as manager (not owner) execute approved transactions
- Property purchases close in the LLC name with IRA funds
Setup costs $1,500–$3,500+ for legal and custodian fees. One prohibited transaction — paying a personal expense from the LLC account — can disqualify the entire IRA.
Prohibited transactions that kill IRA deals
- Personal use — you or disqualified persons living in or vacationing at the property
- Sweat equity — you personally repairing, managing, or improving the property
- Commingling — paying IRA expenses from personal funds (or vice versa)
- Buying from disqualified person — purchasing property you or family already own
- Self-dealing — IRA lending to your operating business
Penalties include disqualification of the IRA — full balance taxed as distribution plus potential 10% early withdrawal penalty if under age 59½.
Illustration: Indianapolis duplex in an SDIRA
Example only. This is not a closed loan and not tax advice. An earlier version of this sketch labeled a $99,000 IRA outlay as “40% down” while listing only $95,000 of IRA cash. Those figures did not add up. The dollars below are rebuilt so the down payment, the loan, and the cash balance match.
| Line item | Amount |
|---|---|
| IRA cash at the start | $120,000 |
| Purchase price | $165,000 |
| Cash from the IRA at closing | $99,000 (60% of price) |
| Non-recourse loan | $66,000 (40% of price) |
| Cash left after the down payment | $21,000 |
| Monthly rent (both units) | $1,850 |
| Monthly PITIA | about $1,320 |
| Net to the IRA before any UDFI estimate | about $530 |
| Loan divided by price | 40% ($66,000 / $165,000) |
| 40% of that $530 net | about $212 |
The $212 figure is a teaching sketch. It is not the number on Form 990-T. IRC section 514 includes debt-financed income in a set percentage. That percentage is average acquisition indebtedness divided by the property’s average adjusted basis, and it cannot exceed 100%. Purchase price is not the same thing as average adjusted basis. A CPA has to run the real fraction. The rent, the payment, and the $21,000 leftover also ignore closing costs, so the cash left in the account would be lower once those bills are paid from the IRA.
Compare personal ownership: DSCR loan for investment property at 5.75%–10.5% with full depreciation and expense deductions on your personal return — different tax treatment entirely.
SDIRA vs. personal entity ownership
| SDIRA ownership | Personal LLC ownership | |
|---|---|---|
| Tax on rental income | Tax-deferred/ Roth-free | Schedule E on personal return |
| Financing | Non-recourse only | Full lender market |
| Management | Third-party PM required | Self-manage allowed |
| Depreciation benefit | Inside IRA (limited UDFI impact) | Directly on your return |
| Exit | Distribution or sell within IRA | Sell, 1031, or refi freely |
Resources: should I hold real estate in an LLC · what is a syndication · pre-qualify non-recourse
When the IRA has to file Form 990-T
Debt-financed rent can be unrelated business taxable income inside the retirement account. The Instructions for Form 990-T tell trustees to file when an IRA has $1,000 or more of unrelated trade or business gross income. The list covers traditional IRAs under section 408(a), SEP IRAs, SIMPLE IRAs, and Roth IRAs under section 408A. Each account is a separate trust. Each one needs its own employer identification number if it will file. A custodian is treated as a trustee. The same instructions say individual retirement annuities, unlike IRAs, are not subject to unrelated business income tax.
Gross income here is not the same as cash left after the mortgage. The instructions point to gross receipts minus cost of goods sold for the general filing test. Rental property usually has no cost of goods sold. Your CPA still has to decide which dollars are debt-financed income and which expenses come off that slice. Do not skip the return because the IRA “lost money” on a spreadsheet. The filing trigger is gross income of $1,000 or more, not your estimate of taxable profit.
What a prohibited transaction does to the account
The IRS prohibited-transaction page, reviewed June 27, 2026, treats an IRA violation differently from a simple fine. If the owner or a beneficiary engages in a prohibited transaction during the year, the account stops being an IRA on the first day of that year. The assets are treated as distributed at fair market value on that day. Gain above basis is taxable.
The same page names disqualified persons. They include the IRA’s fiduciary and the owner’s family: spouse, ancestor, lineal descendant, and any spouse of a lineal descendant. Examples on that page include borrowing from the IRA, selling property to it, using it as security for a loan, and buying property for personal use now or later. Paying a contractor from your checking account, then “reimbursing” the IRA later, is the kind of mix-up that starts this problem. The custodian cannot unwind it with a book entry in March.
IRC section 4975 imposes a 15% tax on a prohibited transaction, and 100% if it is not corrected. That section also says the individual for whom the IRA was opened is exempt from that tax on a transaction if the account ceases to be an IRA because of it. Read that with a tax lawyer. Do not assume you owe the 15% tax and a full distribution, or that you owe neither. The IRS page’s practical warning is the deemed distribution of the whole account.
Custodian checklist before you write an offer
The IRA, or the IRA-owned LLC, has to be the buyer. Your personal name on the contract is a problem even if you “fix it at closing.” Ask the custodian these questions before you wire earnest money.
- Will the custodian sign, or will the IRA-LLC manager sign?
- How many business days does the custodian need after a complete package?
- Which title vesting line do they require?
- Can earnest money leave the IRA account, and how is it documented?
- Will they allow a non-recourse loan, and which lenders have they closed with?
- Who pays insurance, taxes, and repairs, and from which account?
- Is a property manager required in the custodian’s own rules, not only under the tax rules?
Budget the custodian’s review inside the contract timeline. A 7–10 business day close on a Jaken Finance Group bridge or fix-and-flip file does not include a week of custodian silence. If the purchase is all cash from the IRA, the lender clock is irrelevant and the custodian clock is the whole deal. If you need a non-recourse note, start that lender and the custodian on the same day.
Personal ownership when the IRA rules do not fit
Many investors should not force the property into the IRA. Sweat equity, a family tenant, or a plan to live there later will break the account. A personal or LLC purchase can use the normal investor menu.
Jaken Finance Group fix-and-flip and bridge loans are 8.99%–13.5% interest-only. Qualified flip files can reach 100% of cost, capped at 75% of after-repair value, for 6–12 months. Bridge loans run 12–24 months and up to 90% of the purchase price. Both close in 7–10 business days on a complete file. A stabilized rental can move to a DSCR loan at 5.75%–10.5%, with up to 85% of the purchase price, 80% cash-out, or 85% on a rate-and-term refinance. That DSCR close is about 14 business days. It is not a non-recourse IRA loan.
A conventional 30-year average is also the wrong comparison for IRA debt. Freddie Mac’s survey showed a 7.28% average 30-year fixed rate as of October 1, 2026, up from 7.03% the prior week. A year earlier that average was 6.34%. The 15-year average was 6.60% on the October 1 reading, versus 6.42% the week before and 5.55% a year earlier. Source: the Primary Mortgage Market Survey. Those are consumer-mortgage averages. A non-recourse IRA loan is a smaller market with its own price. Call (833) 264-7776 if you want the property in an LLC instead of in the retirement account.
This content is general information, not tax or legal advice. Consult a qualified CPA and attorney before purchasing property with IRA funds.
IRA real estate purchase — financing gap
Most banks will not lend to an IRA — loans must be non-recourse and few lenders offer them. Practical paths:
| Path | Leverage | Complexity |
|---|---|---|
| All-cash in SDIRA | None | Prohibited transaction risk if self-dealing |
| Non-recourse IRA mortgage | ~50%–65% LTV | Limited lenders, higher rate |
| Personal/LLC finance | 8.99%–13.5% / 5.75%–10.5% | Standard investor products |
Many investors hold rentals in LLC personally and keep IRA for passive notes/funds. Self-directed IRA · investment property LLC · DSCR hub.
Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice. All loans are subject to full underwriting for loan approvals. Jaken Finance Group only finances non-owner occupied investment properties.
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