Prohibited Transactions
Your IRA may not purchase property that you or any disqualified person currently owns. Inversely, your IRA may not sell or rent a property it owns to you or any disqualified person. The property must be for investment purposes only, you may not personally benefit from the property. You may not use it as a vacation home, you may not let your son or daughter live there while they are in college, and you may not lease it to your business. Expenses including any repairs made to the property must be paid for by the IRA. Sweat equity is also not allowed in any property owned by your IRA. Repairs must be done by a non-disqualified person. Examples of disqualified people include you, your children, your spouse, or your parents. However, you can decide if, when, how, and by whom the work can be done.
Financing the Purchase
The property can be purchased with cash from your plan. This is the easiest way to purchase property with your IRA. The IRA owns 100% of the property.
You may not lend to any disqualified person or company.
Disqualified persons include yourself, your parents, grandparents, children, grandchildren, spouse or any of their IRAs as well as any company that they own a significant portion of. (See: Prohibited Transactions)
The notes must be real economic transactions
Your IRA must benefit from this note, which means the interest rate must be realistic. A common question is, “My brother is not a disqualified person, can I lend him money to buy a new car at 0% interest?” No, because your IRA is not benefiting from this transaction.