Real Estate IRA Property Income and Expenses

How Property Income and Expenses Work

While it is not required, some investors choose to hire a property manager for the purpose of consolidating expenses. Though the IRS prohibits the IRA holder from being the property manager, Entrust permits IRA holders to receive the rental income and forward it to The Entrust Group for record keeping. Please note, the check from tenants must be made payable to your IRA, not in your name.

Real Estate Investors:

If you hold a self-directed Real Estate IRA with Entrust, all income and expenses are sent to the Entrust cash management team (CMT) for processing. Rental checks must be made payable to The Entrust Group Inc. FBO [client legal name or plan name], account # [account number]. For expenses to be paid by Entrust for your IRA-owned property, complete a Payment Authorization Letter and send it, along with a copy of the invoice or bill, to the CMT.

Property Managers:

If the property is being managed by a property manager, the property manager collects the rent and sends it to Entrust for deposit, along with the profit and loss statement. It is preferred if the profit and loss statement is sent monthly. If no property management company is managing the property, the rental income should be deposited directly to the IRA. The income goes into the IRA tax-deferred until a distribution is taken. If the property is owned by a Roth IRA, you do not pay taxes on the rental or any income associated to the Roth at the time of a qualified distribution because you will already have paid taxes on the contributions made to the Roth.

Having a property manager is advantageous if you are partnering with others. Your tenants do not have to write multiple rental checks to the various investors. They just write one to the property manager, who then distributes the percentages accordingly.

Any expenses related to the investment, including escrow or deposit funds, maintenance fees, insurance, and repairs must be paid directly from the self-directed Real Estate IRA. This means the IRA must have sufficient cash to pay these amounts.

Partnering Your IRA

One way investors acquire funds to make larger investments is to combine their IRA funds with another person's IRA funds. Here is an example of how the income and expenses would be divided in the case that you partnered with another IRA:

Running Out of IRA Funds

If there is insufficient cash to cover property expenses, the IRA holder has the option to rent the property, transfer funds from another IRA, make a contribution, or liquidate other IRA assets to pay for the expenses.