Critical SDIRA Compliance Guide
IRA Prohibited Transactions in Real Estate
A prohibited transaction can cause severe tax consequences and may cause an IRA to lose its tax-advantaged status. Review the people, benefits, services, money, property, and credit involved before an IRA transaction closes.
Quick Answer
The IRS generally prohibits improper use of IRA assets by the owner, beneficiary, fiduciary, or other disqualified person. Common warning signs include personal use, buying from or selling to certain family members, personal guarantees, personal services, and transactions that benefit the owner outside the IRA.
Who May Be a Disqualified Person
The analysis commonly includes the IRA owner, spouse, ancestors, lineal descendants, spouses of lineal descendants, fiduciaries, and certain entities controlled by those persons. The rules are technical; do not rely on an informal family or ownership chart.
Common Real Estate Red Flags
- Buying property from or selling it to a disqualified person
- Living in, vacationing at, or otherwise personally using IRA-owned property
- Paying expenses personally or receiving income personally
- Providing impermissible labor, management, or other services
- Using the IRA as security for a personal loan or personally guaranteeing IRA debt
- Directing a transaction primarily to benefit a related person or controlled business
Potential Consequences
The IRS explains that when an IRA owner or beneficiary engages in a prohibited transaction, the account may cease to be an IRA as of the first day of that year and may be treated as distributing all assets at fair market value. Taxes and additional penalties may follow. See the official IRS guidance.
A Pre-Closing Review
Map every party and relationship; identify who sells, leases, lends, guarantees, performs services, pays expenses, receives income, or benefits; review entity ownership and control; and obtain written advice from qualified counsel for ambiguous facts. Custodian processing is not a legal opinion.
Review the Transaction Before Closing
Review the current offering materials, confirm accredited-investor eligibility, and discuss account compatibility with your custodian and independent advisers before making a decision.
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Investor Overview
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Important Information
This content is educational and is not individualized investment, legal, accounting, or tax advice. Mid Atlantic does not act as an IRA custodian and does not determine whether a particular retirement-account transaction complies with tax law. Consult an independent qualified professional and the account custodian before acting. Private placements are unregistered, illiquid, speculative, available only to eligible accredited investors, and involve risk, including possible total loss. Read the current offering documents before investing. Trust metrics are management-supplied and should be reviewed against current company materials.