Fixing Up IRA Owned Properties

If you wish to fix up or do maintenance work on an IRA owned property, be aware that this is quite easy to do. The most important thing is that you don’t do anything that could be considered a “prohibited transaction.” Don’t worry, though, there are lots of different ways to go about the process correctly. Just remember that you, as the IRA owner, cannot benefit directly from any of the work done to the property. This also counts for other people who fall into the “disqualified persons” category. Also, no recourse loans that have been guaranteed by you or other disqualified persons can fund the repairs. Make sure that you don’t use any personal money, such as out of pocket cash or even credit or debit cards.
One way to avoid a prohibited transaction and to keep your money and the IRA money separate is to make a contract with a general contractor. This way, the contractor will be responsible for purchasing all necessary materials and will then provide trades using a contract that has been signed by the owner and the IRA administrator. Your IRA then pays according to the terms of the contract and to the payment authorization letter. Hiring a general contractor is not cheap, however, so you may want to think about some of your other choices.
A less expensive option is for you to do the work of the general contractor yourself. Your IRA will contract with individual trades. Documentation must be made and signed by the owner and the IRA administrator. Then, the workers are responsible for buying the necessary materials, and the IRA simply pays based on the same contract and letter mentioned above. Using funds from your IRA, you will need to hire a bookkeeper, but this will be far less expensive than the cost of hiring a general contractor.
If neither of these options is right for you, you might also choose to purchase the materials yourself. When you do this, you must use only funds from your IRA. IRA money will also be used to pay for the services of the workers. You’ll just need to have your IRA open a charge account at the supplier’s where you plan to make your purchases. You will get an invoice before making the actual purchase, pay the amount, and then be ready to go.
So, yes you do have a lot of choices when it comes to repairing or servicing a property owned by your IRA. As long as you are careful to understand what counts as a “prohibited transaction,” and then to avoid having your dealings fall into this category in any way, you can safely and legally get anything you want done. It’s all about knowing the law and abiding by it but also finding smart ways to function inside of that law. All that really takes is a little effort and care on your part. In the end, you’ll be the one reaping the benefits.

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