Greg Herlean

Real estate investing with a self-directed IRA (SDIRA) often feels inaccessible, but it isn’t reserved only for insiders or high-net-worth investors. It works because the IRS allows retirement accounts to invest in real estate under specific rules, giving investors a legal way to grow wealth with tax advantages most traditional portfolios can’t offer.

The challenge isn’t access. It’s understanding how SDIRAs work, what the rules allow, and how to apply them correctly. When structured properly, an SDIRA can be used to buy property, collect rental income, and compound returns inside a tax-advantaged account.

In this article, I’ll show you how SDIRA real estate investing works, why it’s effective, and what steps you need to follow to use IRA funds for property investments.

What is a Self-Directed IRA Real Estate?

Self-directed IRAs allow you to invest in alternative assets, like real estate, while retaining the tax advantages of a Traditional or Roth account.

An SDIRA allows you to invest in several different types of property, including:

• Single-family homes
• Multifamily units
• Raw land
• Commercial real estate
• Storage units

SDIRAs may offer greater freedom and flexibility, but they are more highly regulated. Any property purchased must be held by the IRA rather than personally owned. So, while your name won’t grace the title deed, it’s still part of your overall wealth portfolio.

This arrangement offers exciting opportunities for growth through rental income or appreciation over time, all while remaining tax-free or tax-deferred. 

SDIRA Tax Benefits Unleashed: Supercharge Your Investment Returns

One reason I love investing primarily with a Self-Directed IRA is the tax benefits I receive on all my earnings. 

When structured as a Roth account, your SDIRA acts as a tax shield, allowing you to collect earnings in your account without paying a dime on capital gains.

Through compound interest, you can scale your portfolio even more quickly to save for retirement and build wealth.

Investors like Peter Thiel have used these benefits to amass billions of dollars. Through self-directed IRAs and other financial vehicles, I have managed over $1.3 billion in real estate transactions.

How the OBBBA Changes the SDIRA Game

In July 2025, the One Big Beautiful Bill Act (OBBBA) made the 2017 federal tax brackets permanent. This is a significant win for SDIRA investors, especially if you’re using or considering a Roth SDIRA.

Why does this matter?

Because one of the biggest risks in retirement planning is uncertainty about future tax rates, when rates are temporary, converting funds to a Roth can feel like a gamble. With tax brackets now locked in, that uncertainty largely disappears.

For high-income and high-net-worth investors, this makes the strategy of “pre-paying” taxes today far safer. You pay known rates now, then let your real estate investments grow tax-free for decades inside a Roth SDIRA.

Here’s an example:

• You convert $30,000 into a Roth SDIRA while tax rates are known
• You invest in real estate inside the Roth
• That investment grows to $120,000
• You owe zero capital gains tax and zero income tax on withdrawal

With permanent brackets, your exit strategy is no longer based on guesswork. It’s based on pure math.

This added certainty makes Roth SDIRAs one of the most powerful long-term vehicles for tax-advantaged real estate investing.

The Benefits of SDIRA Real Estate Investing

Investing in real estate with an SDIRA can offer numerous advantages. Let’s explore some key benefits, starting with the power to diversify your retirement savings.

Diversify Your Portfolio Retirement Plan with Real Estate

Adding real estate to your investment mix can help you achieve higher returns and reduce risk, as property values tend not to move in lockstep with stock or bond markets. Experience shows that owning a diverse range of assets helps create a more balanced portfolio. 

Providing a Tax Shield

Your investments grow on a tax-advantaged basis, which means profits from rental income or capital gains are either deferred or eliminated, depending on whether you hold a Traditional IRA or Roth IRA.

Several Investment Options Available

Self-directed IRAs offer significant flexibility for real estate investments, including tax liens, wholesaling, house flipping, and more.

Navigating the Rules and Regulations of SDIRAs

Investing in real estate through a self-directed IRA is not just about identifying profitable properties. Navigating the IRS guidelines is a key component of SDIRA investing.

Understanding Prohibited Transactions in SDIRAs

The IRS sets certain boundaries, known as prohibited transactions, for your Self-Directed IRA. Unfortunately, your account may face severe penalties if these rules are broken.

1. The “Disqualified Person” List

An essential part of navigating these waters is understanding who qualifies as a disqualified person according to IRS guidelines. This list includes:

• You
• Your spouse
• Lineal ascendants or descendants and their spouses
• Anyone providing services to your IRA, like an advisor or manager

Note: Siblings, aunts, and uncles are not considered disqualified. You can legally partner with a brother or cousin on a deal.

A common prohibited transaction is directly buying property for personal use with SDIRA funds.

But did you know that even lending money from your retirement account to a disqualified person can lead to penalties? To prevent any potential mishaps, always consult with your IRA custodian before making any significant moves.

2. Debt-Financed Income: UDFI vs. BAPCPA

Self-directed IRAs can use non-recourse loans to leverage real estate purchases, but doing so triggers Unrelated Debt-Financed Income (UDFI) rules.

UDFI means the IRS taxes the portion of income or gains attributable to the debt-financed portion of the property, even inside a tax-deferred or Roth SDIRA. That taxable portion is subject to trust tax rates, which can quickly reach the top bracket.

UDFI Example

An SDIRA buys a $500,000 property using $200,000 cash and a $300,000 non-recourse loan. Roughly 60% of the rental income and future gains are treated as UDFI and taxed annually, while the equity portion continues to grow tax-deferred or tax-free.

Because UDFI can significantly reduce returns, many investors minimize leverage inside SDIRAs or structure debt carefully. Always model UDFI impact with a tax advisor or custodian before using leverage.

Where BAPCPA fits in:

The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) does not affect UDFI taxation. Instead, it acts as a protective shield. It safeguards your IRA assets from creditors in bankruptcy, up to an inflation-adjusted cap for contributory IRAs, with unlimited protection for certain rollover funds.

Used correctly, SDIRAs offer both tax advantages and asset protection, but leverage introduces complexity that must be planned carefully.

How to Set Up Your SDIRA for Real Estate Investing

When it comes to investing in real estate through an SDIRA, the setup process is crucial.

With the right steps, you can turn your retirement account into a powerful vehicle for property investments.

The first step is to find a trustworthy SDIRA custodian, such as the Horizon Trust, which I built to make the process easier.

You’ll need to transfer funds from your existing retirement account or personal savings into this new self-directed one. Luckily, your custodian can make the process simple.

Selecting and Purchasing Property Through Your SDIRA

The next part involves selecting suitable investment properties. The great news? You aren’t limited just to residential units; commercial properties, undeveloped land, and even REITs are viable options for purchase.

To purchase property using your SDIRA funds, you must direct your custodian accordingly. They’ll execute all necessary paperwork, keeping things legal and above board while ensuring no tax penalties along the way.

One way to gain more autonomy is to open an LLC with your SDIRA, granting you what is known as checkbook control. This doesn’t remove the custodian, but it allows you to execute transactions instantly as the manager of the LLC, rather than waiting for custodian processing for every check.

Maintaining Compliance Throughout Investment Life Cycle

Your role doesn’t end after purchasing an asset; ongoing compliance is key. Rental income must go straight back into your account.

Also, keep tabs on any potential expenses directly related to maintaining the property, such as repairs or improvements, as these must also be paid from your SDIRA funds.

Jumping into real estate investment with a Self-Directed IRA might feel overwhelming. But, armed with the right know-how and advice, you could reap significant rewards.

Leveraging the One Big Beautiful Bill Act (OBBBA) for SDIRA Strategy

The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, locks in 2017 tax brackets permanently—removing the 2026 sunset risk that once threatened Roth conversions. This “rate certainty” supercharges SDIRA real estate strategies.​

 

1. Roth Conversion Sweet Spot

Spread Traditional SDIRA conversions (e.g., rental properties) over 3–5 years, filling 22-24% brackets precisely without 2026 rate spike fears. Convert incrementally to avoid 37% bracket jumps.

2. SALT-Shielded Conversions

OBBBA raises SALT deduction to $40K (2025-2029, under $500K income). Time conversions in high property tax years—the extra deduction lowers AGI, subsidizing more real estate into Roth tax-free growth.

3. Trump Account Legacy Ladder

Seed kids’ Trump Accounts ($1K government deposit for 2025-2028 births + $5K annual contributions). Grow tax-deferred, then roll to SDIRA at 18 for a 50-year real estate head start.

4. Senior Gap Year Conversions

Are you over 65? Use the new $6K deduction (2025-2028) and the higher standard deduction for a “tax valley.” Convert Traditional SDIRA assets (properties, notes) at a lower cost. $6K offsets conversion income directly.

Jumping into real estate investment with a Self-Directed IRA might feel overwhelming. But, armed with the right know-how, OBBBA tailwinds, and advice, you could reap significant rewards.

Read More: How to Use Your SDIRA to Invest in Real Estate in a Hot Market.

Financing Options for SDIRA Real Estate Investments

One reason I love investing retirement money is that most of it is already sitting dormant, ready to be invested.

However, if you don’t have a big enough nest egg saved up, there are still plenty of financing options available.

Non-Recourse Loans (The Only Loan an IRA Can Use)

In essence, non-recourse loans are unique because they only use the property purchased with the loan as collateral. This form of borrowing stands out for its compliance with IRS rules.

If default occurs, lenders can take back only that specific asset and cannot pursue any additional compensation, even if they sell it at a loss.

In simple terms:

• The property itself is the only collateral
• If the deal goes bad, the lender can take the property
• They cannot come after you personally or any other IRA assets

This lets your IRA buy bigger properties, but there’s a trade-off. The IRS taxes the part of the profits that come from borrowed money (called UDFI)

2026 update:

Because the One Big Beautiful Bill Act (OBBBA) made current tax brackets permanent, investors now have more certainty about how much they’ll owe after UDFI taxes. The tax still exists, but the outcome is easier to plan for.

Partnering & Syndications (Pooling Funds)

Beyond non-recourse loans lies another avenue for funding: partnering or syndication. This functions by pooling multiple investors’ capital into one pot, which is then used to fund larger-scale projects that would be beyond each individual investor’s reach alone.

An advantage here is diversification. Since your funds are spread across several properties rather than being tied up in just one place, this reduces risk while still offering attractive returns.

Each financing option has different implications on things like contribution limits and IRS regulations regarding prohibited transactions. Always consult professionals or trusted sources when dealing with complex financial matters.

If owning a whole property feels like too much, you can invest with other people instead.

In short, this means:

• Your SDIRA puts money into a group deal
• The group buys large projects like apartments or storage facilities
• You earn a share of the profits without managing the property

Why do I love this SDIRA real financing option?

• Instant diversification
• Access to bigger, more professional deals
• Less hands-on work

And remember, always consult professionals or trusted sources when dealing with complex financial matters to ensure you’re making informed decisions that align with your investment goals and risk tolerance.

Risks and Considerations in SDIRA Real Estate Investing

Real estate investing with a self-directed IRA (SDIRA) can be pretty rewarding, but it’s not without risks.

Fees and Paperwork: The Devil’s In The Details

A key consideration when venturing into SDIRA real estate investing is the fees associated with maintaining your account and transacting properties. Be prepared for plenty of paperwork, too. You don’t want unexpected costs eating into your profits.

The Need For Capital: It Takes Money To Make Money

To get started in real estate through an SDIRA, you’ll need substantial initial capital; remember, investment property isn’t cheap. Ensure you have enough funds set aside before diving headfirst into this venture.

For example, since 2025, most non-recourse lenders have required a 35–40% down payment and additional cash reserves in your IRA (often about 10% of the loan).

This means if your IRA is underfunded, you may struggle to use leverage effectively.

Beware of Disqualified Persons

You cannot use your Self-Directed IRA to buy property for personal use or sell property to close relatives. Keep yourself informed about who counts as a disqualified person. Remember, this includes:

• You
• Your spouse
• Lineal ascendants or descendants and their spouses
• Anyone providing services to your IRA, like an advisor or manager

A Financial Path to Generational Wealth

Now that you understand all of the rules and strategies governing self-directed IRA real estate investing, it’s up to you to execute what you’ve learned. Real estate is not without its risks, and it takes a very risk-averse person to make money.

You may make mistakes and lose money along the way. But at the end of this journey, you’ll be thankful that you took the leap. There is no better financial vehicle to generate generational wealth than real estate, and no better plan to get you there than a Self-Directed IRA.

FAQs: SDIRA Real Estate Guide

Can I use my existing IRA for real estate investments?

Yes, you can convert your existing Traditional IRA or Roth IRA into a Self-Directed IRA to invest in real estate. However, you’ll need to choose a custodian or trustee specializing in Self-Directed IRAs, as not all IRA providers offer this option.

How do I find a reputable custodian for my Self-Directed IRA?

Finding a reputable custodian is crucial. Start by researching and comparing different Self-Directed IRA custodians or administrators. Look for experienced firms with a solid track record, good customer reviews, and transparent fee structures. It’s also essential to choose a custodian that specializes in real estate investments.

Are there any restrictions on the type of real estate I can invest in?

While Self-Directed IRAs offer many investment options, they also have some restrictions. You cannot invest in life insurance contracts or in collectibles such as art or antiques. However, you can invest in various types of real estate, including residential, commercial, and even raw land.

How does rental income from SDIRA real estate get taxed?

In most cases, rental income flowing into a Traditional SDIRA is tax-deferred, and into a Roth SDIRA is tax-free, as long as all income stays in the IRA and all expenses are paid from the IRA. The major exception is when you use leverage. Then, UDFI rules can cause part of the income to be taxed annually.

Can I personally manage a property owned by my SDIRA?

No. You cannot personally manage, repair, or benefit from a property owned by your SDIRA. Any hands-on involvement is considered a prohibited transaction. All work must be performed by third-party vendors and paid directly from the IRA.

Can my SDIRA buy real estate with a mortgage?

Yes, but only through a non-recourse loan. The loan must be secured solely by the property itself, and the lender cannot pursue you personally. Be aware that using leverage can trigger UDFI taxes on the debt-financed portion of income.

Can I live in or vacation at a property owned by my SDIRA?

No. You, your spouse, and other disqualified persons cannot live in, use, or personally benefit from SDIRA-owned property at any time, even briefly. Doing so can disqualify the entire IRA.

Is SDIRA real estate better in a Roth or a Traditional account?

It depends on your tax strategy. Traditional SDIRAs offer tax-deferred growth, while Roth SDIRAs allow qualified rental income and appreciation to grow completely tax-free. Many investors prefer Roth SDIRAs for long-term real estate growth because they eliminate capital gains taxes.

Wealthy investors don’t pay full capital gains tax rates. Instead, they use proven strategies to slash their tax burden based on taxable income and filing status. 

This guide reveals the tax benefits the rich use to keep more of the profits from real estate and other tax-free investments. 

Note: Always consult a tax advisor as rules change, and this isn’t personalized advice.

What Are Capital Gains Taxes?

Capital gains taxes are taxes paid on the profit earned when an asset is sold for more than its original purchase price. 

A capital gain occurs when you buy an asset at one price and later sell it for a higher amount. The difference between what you paid and what you sold it for is the gain, and that profit may be subject to taxation depending on the asset type and how long it was held.

Common assets subject to capital gains tax include:

• Property or real estate
• Stocks and bonds
• Businesses or business shares
• Cryptocurrencies
• Valuable collectibles (art, jewelry, etc.)

10 Strategies for Avoiding Capital Gains Tax (Legally)

The good news is that you can reduce how much you can lose to capital gains tax through some commonly used tax loopholes. 

Here are some legal, tax-efficient strategies you can use to manage your tax bill when divesting.

1. Invest in a Tax-Deferred Savings Plan

A capital gains tax liability isn’t triggered when you buy or sell securities within tax-deferred retirement plans. This includes Roth IRAs, Roth SDIRAs, and Roth 401(k) plans.

Your capital gains won’t be taxed until you begin withdrawing funds from your account. This strategy isn’t just delaying pain until that day. Capital gains are taxed at your ordinary income rate. So people who slide into lower tax brackets after retirement can benefit.

What’s more, any Roth IRA and 401(k) funds specifically are immune to capital gains taxes under some conditions.

2. 1031 Exchange

Section 1031 of the U.S. Internal Revenue Code allows you to avoid paying capital gains taxes after selling an investment as long as you reinvest the proceeds from the sale within a certain window of time. 

The stipulation is that you must reinvest in a similar property that’s of greater or equal value to the one you sold. This strategy is a great way to raise capital for real estate.

Here’s what you should watch out for:

• Strict Timelines: Identify replacement property within 45 days; close within 180 days of sale.
• Qualified Intermediary (QI): Use a third party to hold proceeds. Direct ownership triggers immediate tax.
• No Boot Allowed: Any cash or non-like-kind property received counts as taxable income.

The key is preparation. Pre-qualify properties and work with experts. It’s also important to consult a tax advisor to structure for ongoing tax benefits without disrupting cash flow.

1031 Exchange Example

Let’s say you sell an investment property for $1,000,000 with a gain of $200,000 and:

• Buy a new investment property for $1,000,000 or more within the deadlines through a QI. You defer the gain; no tax due yet.
• Buy a property for $900,000 and keep $100,000 cash. That $100,000 is boot and taxable.

3. The Primary Residence (Section 121) Exclusion 

The Primary Residence (Section 121) Exclusion allows people who meet specific criteria to exclude up to $250,000 (single filers) or $500,000 (married filing jointly) in capital gains tax when selling a home and making a profit. Here’s what’s required:

• The home you sold was your true primary residence.
• You’ve owned and used your home as your main residence for at least 2 out of the 5 years before its sale date.
• You haven’t already used the primary residence exclusion for another home during the two-year period before the sale of your home.

You must report the sale of your home even if your gain is considered excludable. 

The IRS also provides some exceptions for the 5-year usage test. Homeowners on extended duty in the military or the intelligence community may be eligible to have their period bumped to 10 years.

Section 121 Exclusion Example

If you’re single and sell your home with a $300,000 gain, and you meet all tests, you can exclude $250,000 from taxable income. This means only $50,000 is subject to capital gains tax. If married filing jointly, that exclusion can be $500,000.

4. Donate to Charity

One of the most tax-efficient ways to reduce capital gains, especially when selling assets in a high-income year, is to make strategic charitable contributions.

Instead of donating cash, consider donating appreciated assets such as stocks, ETFs, or other investments you’ve held for more than one year.

Why this works:

• You avoid paying capital gains tax on the appreciation
• You may still receive a charitable deduction for the full fair market value of the asset
• The charity can sell the asset tax-free

This creates a double tax benefit: no capital gains tax for you, and a larger gift for the charity.

Smart Charitable Giving Options to Consider:

Donate Appreciated Securities Directly 

Ideal if you’re already planning to sell. This bypasses capital gains entirely.

Donor-Advised Funds (DAFs) 

You can donate assets in a high-income year, take the deduction immediately, and distribute funds to charities over time. This is especially useful for “bunching” deductions into one year to itemize.

Charitable Remainder Trusts (CRTs) 

Advanced strategy: you donate assets to a trust, receive income for a period of time, and the remainder goes to charity. This can spread out capital gains exposure over many years.

Timing Matters 

Donating in the same year as a major asset sale can help offset the tax impact when your income spikes.

Before you dive into this strategy, note that there are important limitations to note:

• This strategy generally applies only if you itemize deductions
• Deduction limits are based on Adjusted Gross Income (AGI) (typically 30–60%, depending on the asset and charity)
• Proper documentation and valuations are required

Charitable giving isn’t just about generosity. When done correctly, it’s a powerful tax-planning tool. Work with a tax advisor to determine the right assets, timing, and structure to reduce capital gains exposure without sacrificing cash flow.

5. Offset Gains With Losses (Tax-Loss Harvesting)

Tax-loss harvesting is the strategy of intentionally selling investments at a loss to offset capital gains realized elsewhere in your portfolio. For greater impact, sell off underperforming assets.

A capital loss occurs when you sell a capital asset (such as stocks, bonds, or investment real estate) for less than its purchase price. Like gains, capital losses are classified as short-term or long-term based on how long you held the asset.

Short-term losses are first used to offset short-term gains, and long-term losses are first used to offset long-term gains. If losses exceed gains, up to $3,000 of net capital losses can typically be deducted against ordinary income each year, with remaining losses carried forward to future tax years.

Here’s a simplified tax-loss harvesting example: Sell Stock A at a $20,000 loss to offset a $50,000 gain from selling an investment property, reducing your taxable gain to $30,000.

Important: The IRS wash sale rule prevents you from claiming a loss if you buy the same or a substantially identical asset within 30 days before or after the sale. Proper timing and asset selection are essential.

6. Strategic Reinvestment: Opportunity Zones and Small Business Stock

These advanced strategies can significantly reduce or delay your tax bill, but because they involve strict timelines and specific entity requirements, they should always be executed alongside a tax professional.

i). Defer Gains with Qualified Opportunity Funds (QOFs)

One of the most effective ways to keep your money working for you is to defer paying capital gains tax. By investing your realized gains into a Qualified Opportunity Fund (QOF) within 180 days of a sale, you can postpone your tax bill.

• The Timeline: Under current law, taxes on these reinvested gains are deferred until December 31, 2027 (payable in 2028).
• The Bonus: If you hold the QOF investment for at least 10 years, any new appreciation on the Opportunity Fund investment itself is 100% tax-free.

ii). The Section 1202 “Small Business” Exclusion

For those investing in startups or early-stage companies, Section 1202 (Qualified Small Business Stock) offers one of the largest tax breaks in the U.S. code.

• The Exclusion: You can exclude the greater of $10 million (or $15 million for stock issued after July 2025) or 10 times your original investment from federal capital gains tax.
• The Requirements: The company must be a domestic C-Corp with gross assets under $50 million at the time the stock is issued, and you must hold the shares for at least five years.

iii). Hedging Against Inflation

In high-inflation environments, deferring taxes is often advantageous because you are paying the government back in the future with “cheaper” dollars. Strategically selecting assets that have historically outpaced inflation (such as certain real estate or tech sectors) can help counteract the nominal “bracket creep” that often occurs as inflation drives up asset prices.

The trick is understanding how to invest during inflation to counteract any losses.

7. Figure Out Your Cost Basis

You can keep a larger portion of your investment profits by mastering the “Cost Basis” formula. Your taxable gain is not simply the sale price; it is the Sale Price minus your Adjusted Cost Basis. Here’s how to figure out your cost basis:

Calculate Your “Adjusted” Total

Don’t just use the stock’s sticker price. Your basis should be adjusted to include the “friction costs” of investing.

• Add Purchase Costs: Increase your basis by adding brokerage commissions, transfer fees, and any “loads” paid at the time of purchase.
• Subtract Sale Costs: Reduce your total proceeds by subtracting the commission you paid to sell the asset.
• Account for Dividends: If you use a Dividend Reinvestment Plan (DRIP), each reinvested dividend is treated as a new purchase and increases your cost basis, which reduces your future taxable gain.

Choose the Right “Tax Lot” Method

If you have bought shares of the same company at different times and prices, the IRS allows you to choose which shares you are selling. This choice can drastically change your tax bill:

Method	What it does	Tax Impact
FIFO (First-In, First-Out)	Sells your oldest shares first.	Highest Tax: Usually results in the largest gain in a growing market.
HIFO (Highest-In, First-Out)	Sells your most expensive shares first.	Lowest Tax: Minimizes current gains by maximizing the cost basis.
Specific ID	You pick the exact purchase date to sell.	Custom: Gives you total control over the exact gain or loss realized.

 

The Inflation “Shadow”

In 2025, inflation continues to impact nominal gains. By using the HIFO method or Specific Identification, you can sell “high-cost” lots to offset gains in other parts of your portfolio (Tax-Loss Harvesting). This helps ensure you aren’t paying taxes on “gains” that were actually just a result of inflationary price increases.

8. Gift to Someone or Move Somewhere With a Lower Tax Bracket

Another creative way to reduce your capital gains tax is to gift someone in a lower tax bracket. Using this strategy (the IRS’s “gift-and-shift” strategy) to keep more money in the family. Instead of selling a winning stock yourself, consider gifting the shares to a family member in a lower income bracket. Here are some important notes for this to work well:

• High Annual Limits: Since the One Big Beautiful Bill Act, you can now gift up to $19,000 per person, up from $16,00 (or $38,000 as a married couple, up from $32,000) without having to file a gift tax return or eat into your lifetime exemption.
• The Tax Advantage: When the recipient sells the gifted stock, the gain is taxed at their rate, not yours. If their income is low enough, they may even qualify for a 0% capital gains rate, effectively wiping out the tax bill entirely.
• The “Kiddie Tax” Caution: Be careful when gifting to students under age 24 or children under 18. Under the “Kiddie Tax” rules, any investment income they receive over $2,700 is typically taxed at your higher rate, which negates the gift’s benefit.

9. Leverage Long-Term Holding Periods

The simplest way to cut your tax bill in half is often just a matter of patience. The IRS rewards “buy and hold” investors by applying significantly lower tax rates to assets held for more than one year.

• The 12-Month Rule: To qualify for long-term rates, you must hold your asset for one year and one day. If you sell at 364 days, you’ll pay short-term rates, which are the same as your ordinary income tax (up to 37% in 2025).
• The 0% Bracket: If your total taxable income is below $48,350 (single) or $96,700 (married filing jointly) in 2025, your long-term capital gains rate is 0%.
• The 15% Standard: Most middle-to-high-income earners fall into the 15% bracket, which remains a substantial discount compared to the 22%–35% ordinary income brackets they likely inhabit. 

10. Exchange Funds and Section 351 Transfers

If you have a “concentrated” position (a lot of money in a single stock) and want to diversify without selling and triggering a massive tax bill, you can use a “swap” or Exchange Fund.

• The Strategy: Under Section 721 (for partnerships) or Section 351 (for corporations/ETFs), you contribute your appreciated shares into a pool with other investors. In return, you receive a diversified “basket” of stocks or ETF shares.
• The Tax Benefit: Because you are “exchanging” rather than “selling,” the IRS does not recognize a capital gain. Your tax is deferred until you eventually sell your shares in the fund.
• The “Seven-Year” Rule: To keep the tax-free status of a partnership exchange fund, you typically must remain in the fund for at least 7 years.
• Diversification Test: For a Section 351 ETF conversion, your portfolio must pass a “25/50 test”—meaning no single stock can make up more than 25% of the total value, ensuring you aren’t just using the fund to hide a single risky bet.

Caution: Exchange funds are generally reserved for “Accredited Investors” (individuals with $1M+ in net worth or $200k+ in annual income) and often carry high management fees.

Bonus: Avoiding Capital Gains Tax on Inheritance (Step-Up in Basis)

When you inherit an asset like stocks, real estate, or a business, the IRS lets you reset its value to what it was worth on the day the owner died. This reset is called a step-up in basis.

What this means for you is simple: All the growth that happened during the original owner’s lifetime is wiped away for tax purposes.

Why does this matter?

Capital gains tax is usually based on how much an asset increased in value over time. With a step-up in basis, you’re only taxed on growth that happens after you inherit it.

Here’s a simple example

• A parent buys stock for $100,000
• The stock is worth $700,000 when they pass away

When you inherit it your “starting value” becomes $700,000.

Now:

• Sell immediately at $700,000 → no capital gains tax
• Sell later at $720,000 → only $20,000 is taxable

Instead of paying tax on $600,000 of gains, you’re only taxed on what the asset earns after you receive it.

The step-up in basis is one of the most powerful wealth-transfer tools in the tax code. With good estate planning, families can pass down assets with little to no capital gains tax.

The key to understanding capital gains is knowing that the tax code rewards investors in it for the long game. The simplest way to avoid capital gains tax when selling an investment asset is to hold it for at least 1 year before selling.

Capital gains are taxed based on your ordinary income rate, so reducing income through losses, donations, or other means is the other strong alternative for avoiding a huge tax hit.

FAQs

What is a Section 121 exclusion?

The Section 121 exclusion allows homeowners to exclude up to $250,000 (single) or $500,000 (married filing jointly) of capital gain from the sale of their primary residence. You must own and use the home as your main residence for at least 2 of the 5 years before sale, and not have claimed it on another home in the prior 2 years.​

What is a 1031 exchange?

A 1031 exchange defers capital gains tax on investment property sales by reinvesting proceeds into a like-kind property of equal or greater value. Identify the replacement within 45 days and close within 180 days using a qualified intermediary to hold funds—no cash “boot” allowed.​

Can tax-loss harvesting eliminate my capital gains tax?

Tax-loss harvesting offsets gains with investment losses, reducing taxable gains dollar-for-dollar. Short-term losses first offset short-term gains; excesses up to $3,000 are deducted from ordinary income, with the rest carried forward. Avoid the 30-day wash sale rule.​

How do Opportunity Zones defer capital gains?

Invest realized gains into a Qualified Opportunity Fund within 180 days to defer tax until 2027. Hold 5 years for 10% basis step-up, 7 years for 15%, or 10 years for tax-free appreciation on the new investment.​

Does donating appreciated assets avoid capital gains tax?

Yes. Donate stocks or property held over a year directly to charity for a fair market value deduction without paying capital gains on the appreciation. Limits apply (up to 30% of AGI); donor-advised funds offer flexibility for bunching.

Do wealthy investors actually avoid capital gains tax entirely?

In many cases, yes—but legally. High-net-worth investors often reduce or defer capital gains taxes through strategies like tax-deferred retirement accounts, real estate exchanges, charitable donations, and long-term holding periods. While taxes aren’t always eliminated forever, they are often minimized or shifted into lower-tax years.

Is it illegal to try to avoid capital gains tax?

No. Avoiding capital gains tax through IRS-approved strategies is completely legal. Tax evasion is illegal, but tax avoidance—using deductions, exclusions, deferrals, and credits built into the tax code—is a standard and encouraged part of financial planning when done correctly with professional guidance.

An essential strategy for building wealth is lowering your tax burden, which cuts into capital gains. 

Since many realtors are self-employed, they often manage their own taxes and face a significant tax burden each year.

There are several tax strategies and loopholes that realtors can specifically take advantage of to lower their burden and pocket more money, including pass-through deductions, deducting mileage, and gaining professional real estate status. 

This article unveils six lesser-known tax strategies that have helped the wealthiest realtors maximize their profits.

What Exactly are Tax Loopholes?

Tax loopholes are provisions in the tax code that provide opportunities to reduce tax liability. For realtors, tax loopholes are the keys to unlocking strategies that keep more profit from each transaction and investment.

The Power of Tax Loopholes for Realtors

Realtors operate in a unique business environment where income can be highly variable and dependent on market conditions. In this landscape, tax loopholes serve as critical tools for:

• Enhancing Cash Flow: By reducing tax liabilities, realtors can ensure a more consistent and fluid cash flow.
• Encouraging Investments: Some tax loopholes promote investment in properties, renovations, and community development.
• Providing Competitive Edge: In a highly competitive market, the ability to navigate and leverage tax codes effectively can give realtors an edge, allowing for more aggressive pricing strategies and better investment returns.

How to Navigate and Leverage Tax Loopholes

Leveraging tax loopholes requires diligence, foresight, and, sometimes, creativity. Here’s how you can start:

• Stay Informed: Tax laws evolve, and staying informed of the changes is crucial. Regularly consulting with tax professionals or attending seminars can provide insights into new and existing loopholes.
• Keep Immaculate Records: Proper documentation is key. Detailed records can provide the foundation for leveraging tax loopholes effectively.
• Understand the Implications: Understanding the long-term impact of leveraging a loophole is crucial to ensure it aligns with your overall financial strategy.
• Consult with Professionals: The complexity of the tax code often necessitates professional advice. A trusted accountant or tax advisor specializing in real estate can provide tailored strategies that align with your goals and risk tolerance.

6 Tax Loopholes Realtors Can Leverage to Their Advantage

1. Pass-Through Deductions

Real estate professionals benefit tremendously from pass-through deductions, which were recently introduced with tax law revisions. 

These deductions allow owners of pass-through entities to retain a higher percentage of their income by lowering their taxable bracket considerably.

Understanding Pass-Through Entities and Their Tax Implications

Pass-through entities include structures like sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations. Unlike corporations, these entities don’t pay income taxes at the business level. 

Instead, the income ‘passes through’ to the business owners or partners, who then report it on their personal tax returns. While this avoids the double taxation faced by C corporations, it also subjects the income to individual tax rates.

The Impact of Pass-Through Deductions

The Tax Cuts and Jobs Act introduced the Qualified Business Income (QBI) deduction. This tax break allows eligible taxpayers to deduct up to 20% of their qualified business income from a pass-through entity. Deducting this income lowers the maximum tax rate, which reduces the tax burden that realtors face.

Maximizing Your Benefit from Pass-Through Deductions

To fully leverage pass-through deductions, consider the following guidelines:

• Know Your Eligibility: Not all business income qualifies for the QBI deduction. You must typically earn it in the U.S. After reaching a certain income threshold, service-based businesses face additional limitations.
• Understand the Limitations: This deduction comes with phase-out thresholds that can reduce or eliminate the deduction for higher earners. Additionally, the deduction can be limited based on the amount of W-2 wages paid by the business.
• Strategize Your Income: If your income approaches the phase-out thresholds, consider deferring income or accelerating deductions to maximize your eligibility for the QBI deduction.
• Consider the Structure of Your Business: The structure of your real estate business can significantly impact how much you benefit from pass-through deductions. Consult with a tax professional to determine the most advantageous structure for your specific circumstances.
• Stay Informed and Compliant: Tax laws and interpretations evolve swiftly. Regular consultations with tax advisors can help you navigate these changes and remain compliant.

For realtors and professionals navigating the complex realm of real estate investments, the pass-through deduction offers a promising avenue for tax optimization.

2. Home Office Deductions

Another way for realtors to save on taxes is to transform part of their home space into a qualifying home office. 

To qualify for the home office deductions, you must meet the IRS criteria. Here are the fundamental requirements you must satisfy:

• Regular and Exclusive Use: You must exclusively and regularly use your home office to conduct business. Don’t mix personal activities with professional ones in this space.
• Principal Place of Your Business: Your home office should be the principal place where you conduct your business. This can include administrative activities, even if you meet clients or perform real estate services elsewhere.

Once you qualify for the home office deduction, the goal is to maximize it by keeping meticulous records, documenting all expenses, and choosing the deduction method—simplified or regular—that yields the greatest benefit. 

Track your office size, utilities, mortgage interest or rent, repairs, and maintenance, and consider depreciation if you own your home (while keeping future tax implications in mind). Maintain clear, organized documentation to support your claim if audited, and stay current with IRS rule changes to ensure your deductions remain accurate and compliant.

3. Travel Expenses and Mileage

For realtors, your vehicle is one of your most valuable business tools. Client meetings, showings, listing tours, and industry events all qualify as deductible mileage when properly tracked.

To make the most of the deduction, follow IRS guidelines. The 2025 standard mileage rate is $0.70 per mile, covering gas, maintenance, and vehicle wear. 

Keep accurate, real-time records using a logbook or mileage app, and remember that only business mileage counts. Trips to meet clients or view properties qualify, but commuting from home to your office does not.

4. Hiring Family Members

Hiring family members can be a smart tax move for realtors, but only when done correctly. Paying a spouse or child for legitimate work allows you to shift income into lower tax brackets, deduct their wages as a business expense, and—depending on your business structure—potentially avoid FICA or FUTA taxes for younger children.

To stay compliant, treat them like real employees: document job duties, track hours, follow labor laws, and issue proper payroll reports. 

With the right structure, hiring family members can also open the door to additional benefits like retirement plan contributions or funding education accounts.

Done right, it’s a simple way to keep earnings in the family and reduce your overall tax bill.

5. Insurance Premium

As a realtor, you can also reduce your tax burden by claiming the insurance premium deduction. The premiums you spend every month to protect your business and your health can lower your taxable income. 

• Health Insurance Premiums: Self-employed realtors can deduct 100% of their health insurance premiums for themselves, their spouse, and dependents. This deduction adjusts your income whether you itemize deductions or not.
• Professional Liability Insurance: Premiums paid for professional liability insurance are fully deductible as business expenses.
• Property Insurance: You can also deduct insurance premiums for property used in your business, such as your office space or a car, as a business expense.
• Workers’ Compensation Insurance: If you have employees, the premiums for workers’ compensation insurance are deductible business expenses.

The key is documentation: only deduct premiums tied to your business activity and maintain records of every payment. If you or your spouse are eligible for employer-subsidized health coverage, that may limit your ability to deduct your own premiums. A tax professional can help you structure these deductions correctly and avoid common mistakes.

6. Gaining Real Estate Professional Status

Earning Real Estate Professional Status (REPS) is one of the most powerful tax advantages available to active real estate professionals. If you spend at least 750 hours per year and more than half your working time materially participating in real estate, the IRS allows you to treat rental losses as active rather than passive.

REPS can help you avoid the 3.8% Net Investment Income Tax and amplify the benefit of depreciation deductions on rental properties.

Success with REPS comes down to meticulous record-keeping and a solid understanding of the IRS participation rules. Some investors also group multiple properties into a single activity to meet the requirements more easily.

For high-earning realtors or investors with growing portfolios, REPS can be a cornerstone tax strategy—one that unlocks deductions most people never get to use.

Mastering tax strategy is one of the most powerful ways realtors can protect their income and build long-term wealth. 

Whether you’re hiring family members, deducting insurance premiums, tracking mileage, or pursuing Real Estate Professional Status, the goal is the same: keep more of what you earn and use the tax code to your advantage. 

With the right guidance and a proactive approach, these strategies become simple, repeatable systems that strengthen your financial foundation year after year.

Tax Loopholes FAQs

What Expenses Can You Deduct for a Home Office?

If you regularly conduct business from your home, the expenses you can deduct include the following:

• Mortgage interest
• Utility payments
• Maintenance
• Depreciation
• Insurance

What Items Don’t Count as Qualified Business Income (QBI)?

Before you claim the 20% QBI deduction, keep in mind that you can’t deduct the following items:

• Wage income
• Capital gains or losses
• Qualified REIT Dividends
• Business income from outside the United States
• Interest income that you’re unable to allocate to your business

What Is the 2025 Phase-Out Threshold for the Pass-Through Deduction?

In 2025, the amount of the pass-through deduction that you qualify for starts phasing out once you meet the threshold of $197,300 for individuals and $394,600 for joint filers.

How much can hiring a family member really save me in taxes?

It depends on your tax bracket, business structure, and the wages paid. Many realtors save hundreds to thousands per year by shifting income to a lower tax bracket and eliminating payroll taxes for qualifying children.

What records should I keep for mileage and travel deductions?

Maintain logs showing date, purpose, destination, and mileage for every business-related trip. Digital tracking apps make this easy and provide IRS-ready documentation if you’re ever audited.

How do I know if I qualify for Real Estate Professional Status?

You must meet IRS requirements, including 750 hours of material participation and spending more than half of your total working hours on real estate activities. A tax professional can analyze your work patterns and help you plan toward qualifying.

Can I deduct insurance premiums even if I don’t itemize?

Yes, self-employed health insurance premiums are an above-the-line deduction, meaning they reduce your taxable income whether or not you itemize. Other business-related insurance premiums are deducted as operating expenses.

If you have not started planning your retirement, the years can disappear before you know it.

When I coach investors, my message is simple. If you want real control over your retirement, you need a strategy that can grow faster than traditional accounts.

I use self-directed IRAs because they give me control. They also allow me to invest in real assets that I understand. If you want to build wealth faster and protect your money from inflation, you should know how a self-directed IRA (SDIRA) works. Investors like Peter Thiel have used SDIRAs to significantly boost his wealth and portfolio. 

I have managed over 1.4 billion dollars in financial transactions. I have flipped more than 450 homes and over 2,000 apartment units. This experience taught me how powerful the self-directed IRA structure can be. It also taught me how fast wealth compounds when taxes do not take the first cut.

Below is a simple breakdown of how SDIRAs work and why I recommend them.

What Is a Self-Directed IRA

A self-directed IRA is a retirement account that lets you “self direct” your investments in alternative assets. Traditional IRAs limit you to stocks, bonds, mutual funds, ETFs, and annuities. An SDIRA opens your investment menu to assets with higher growth potential.

Examples include:

• Real estate

   

• Raw land

   

• Rental properties

   

• Tax liens and deeds

   

• Water, oil, gas, and mineral rights

   

• Private companies

   

• Limited partnerships

   

• Precious metals that meet IRS standards

   

• Cryptocurrency

   

• Crowdfunded investments
  
  

A custodian holds the account, but you make every investment decision. You perform the due diligence. You manage the strategy. You choose the assets. That level of control is why these accounts create wealth for investors who know what they are doing.

And if you’re still a fan of stocks and ETFs, you can also invest in them while saving amazing amounts of cash on capital gains taxes.

 

Pros and Cons of an SDIRA

A self-directed IRA is an exceptional choice for someone seeking diversification of assets.

For many people facing retirement, investing in alternative assets using an SDIRA is viewed as a shield against inflation and volatility. Here’s a glance at the advantages of SDIRAs:

 

• • Flexibility: Self-directed IRAs provide a much broader scope of asset classes compared to traditional IRAs. Diversification beyond stocks, bonds, and mutual funds can help a portfolio to remain resilient against downturns. In addition, investors can dip their toes into exciting markets with everything from gold to cryptocurrency staking on the menu with SDIRAs.

• • Potential for Higher Returns: SDIRAs are especially attractive to investors looking for assets with higher-than-average investment returns. On the flip side, an SDIRA can also be a powerful tool for investment, such as raising capital for real estate using dormant retirement funds.

• • Control: The account holder ultimately controls the destiny of an SDIRA. Many investors enjoy using their specialized knowledge regarding specific asset classes to make custom investment decisions. In fact, an SDIRA makes it possible to invest in hobbies and passions!

• • Tax Benefits: IRAs are amazing tax-free investments to build wealth to keep up with inflation without forfeiting most of it to the IRS.

 

Cons

 

• • Full Control: The success of an SDIRA depends entirely on the judgment of the account holder. The pressure is really on when it comes to making smart investment choices.

• • Loss of Liquidity: While it’s exciting to be able to invest in alternative assets, unloading them can take time and effort. Unlike traditional assets that can be sold off with the press of a button whenever the market is open, alternative investments can take years to sell, and some might never find buyers.

• • Fees: Fees can be slightly higher with SDIRAs. While the general cost to set up an SDIRA is reasonable, some custodial firms charge a lot for administration.

• • Complexity: A self-directed IRA comes with a long list of rules and prohibited transactions regarding your own assets. For example, real estate investments made through an IRA cannot be touched for personal use. The simple act of fixing a broken toilet in a property you own through an IRA could result in IRS penalties, interest charges, and forfeiture of your SDIRA tax benefits.

What’s the Difference Between Traditional and Roth SDIRAs?

 

The difference between a Roth and Traditional SDIRA comes down to its tax structure. You have to consider whether you will be in a higher tax bracket now or at retirement to reap the full benefits of each IRA.

Traditional SDIRA

With a traditional SDIRA, the account holder contributes pre-tax dollars. This investment then grows on a tax-deferred basis until being taxed as current income once withdrawals begin after age 59 1/2.

This works for most people because they benefit from deferring taxes on a portion of their income during their “peak” earning years. For the average person, peak earning years are when their income is taxed at a higher bracket.

The assumption is that people fall into lower tax brackets after retirement because they no longer work full-time. As a result, they will presumably pay a lower tax rate on their IRA withdrawals. 

Roth SDIRA

With a Roth IRA, the account holder contributes after-tax dollars that will then grow on a tax-free basis. All withdrawals made after age 59 1/2 will not be taxed as current income. This can be a good option for someone anticipating that they will be in a higher tax bracket during retirement.

Rules, Contribution Limits, and Prohibited Transactions

For 2026, account holders under the age 50 have a contribution limit of $7,500. Account holders over 50 can add an additional $1,100 in catch-up contributions to max out at $8,600.

Once a person reaches age 59 1/2, they can begin making withdrawals tax-free. Note that Traditional SDIRAs require minimum distributions (RMDs) starting at age 73. Roth SDIRAs do not have RMDs.

Withdrawing funds before age 59 1/2 will result in a 10% penalty. The account holder will also need to pay income tax on the withdrawal amount based on their ordinary income tax rate.

Fortunately, Self-directed IRAs do qualify for the same hardship distributions as other IRAs.

While much is made of the alternative investment options available through the SDIRA, this account type isn’t made for free-for-all investing. For example, SDIRAs cannot invest in art, S-corporations, or life insurance.

SDIRAs also have strong restrictions against what the Securities and Exchange Commission calls self-dealing. This means that IRA owners are not permitted to essentially “do business with themselves.”

For example, selling your property to yourself, lending yourself funds from an IRA, taking IRA income, and paying IRA expenses with your own money are all prohibited.

In this scenario, the SDIRA owner is referred to as a “disqualified person” by the IRS.

In the case of a real estate investment, this distinction means that the IRA owner is prohibited from living at a property, staying at a property, doing any kind of work or maintenance, or directly funding any kind of work of maintenance.

The disqualified person’s title even extends to an account holder’s spouse, children, grandchildren, and parents. The same goes for any entity where the account holder possesses more than 50% ownership, holds a director role, or can be classified as a “highly compensated” employee.

How to Open a Self-directed IRA

Here is how the process works.

1. Choose a Custodian

Reach out to Horizon Trust, the custodian company I founded to simplify self-directed IRA investing, and setup an appointment. 

2. Fund the Account

You can transfer, rollover, or contribute new funds. Your custodian will distribute them to your choice investments. 

3. Select Your Investments

You choose the assets based on your knowledge and risk tolerance.

4. Manage the Strategy

Track performance, follow IRS rules, and build long term growth.

Is a Self-directed IRA Right for Me?

If you want more control, better diversification, and the ability to invest in real assets, an SDIRA is worth your time. If you are willing to learn the rules and follow them, this account can build significant wealth.

I built my own wealth through real estate, private deals, and alternative assets. I have seen how powerful these accounts are for long term growth. If you want tax free or tax deferred compounding, and you want control over the asset classes you invest in, an SDIRA may be the best tool for your future. 

Self-Directed IRA FAQ

What type of IRA lets you invest in cryptocurrency?

A self-directed IRA allows cryptocurrency investments using tax deferred or tax free income.

Can I manage my own SDIRA?

Yes. You choose the investments. However, you must use a custodian to hold the account.

What can I not invest in?

You cannot invest in art, collectibles, S corporations, life insurance, or precious metals that fail IRS standards.

Can I live in a property owned by my SDIRA?

No. You cannot live in it, stay in it, or work on it. This is a prohibited transaction.

Can my SDIRA buy a property from a family member?

No. Transactions with disqualified persons are prohibited.

Can I mix personal funds with SDIRA funds?

No. Mixing funds violates IRS rules.

Can I borrow money from my own SDIRA?

No. Lending money to yourself or your business through your IRA is prohibited.

Ever stared at a towering skyscraper and wondered how it started? A single blueprint, one solid foundation, and countless bricks built over time. It’s not too different from how to scale and grow your real estate business.

The same principles apply – start with a strong plan, build on the right strategies brick by brick, be patient yet persistent.

In this video, packed with insights from industry titans like Kent Clothier and others who’ve successfully scaled their own real estate empires, you’ll discover the key elements needed for success in this dynamic field. 

From leveraging self-directed IRAs to maximizing returns through savvy investing tactics to mastering Kent’s P5 formula that streamlines your growth journey, there are gold nuggets here for everyone eager enough to dig deeper.

Ready to architect your path toward becoming an accomplished real estate mogul? 

The Power of Self-Directed IRAs in Real Estate Investing

When it comes to real estate investing, one tool stands out as a powerhouse for wealth building: the self-directed IRA. This specific retirement account gives you the advantage of having more power over your investments, and it opens up possibilities in the profitable realm of real estate.

A self-directed IRA allows investors to funnel their funds into alternative investment vehicles like real estate properties, providing an edge against traditional stocks or bonds. SDIRAs also provide a great source of capital for real estate investments or other high-equity investments. It’s no wonder that savvy investors are turning towards this form of passive income generation [Learn More: Leveraging Retirement Accounts in Real Estate with Gerg Herlean and Ryan Pineda].

Leveraging Retirement Accounts for Consistent Returns

Unfortunately, the stock market is no longer the reliable vehicle for steady growth it once was. Between diminishing returns and increased volatility, many are turning to alternative solutions. That’s why many individuals have started using old 401(k)s and other retirement accounts to invest in real estate, which offers consistent returns.

This strategy not only ensures steady cash flow but also aids in deferring taxes on rental income or property equity–a perk that increases your compound interest. By strategically building wealth through these channels, you can expect significant business gains while maintaining peace of mind regarding future growth.

Unlocking Retirement Accounts for Investments

Firms like Horizon Trust Company enable people to unlock their retirement accounts specifically for investments. They guide individuals on how they can use these assets effectively within legal boundaries without having them locked away until retirement age hits.

In fact, with proper guidance from such companies, along with careful analysis and strategic decisions based on market conditions, there is potential for a substantial return on investment beyond what most conventional financial plans offer.

Kent Clothier’s Journey in Scaling Real Estate Businesses

What can a grocery store worker teach us about scaling real estate businesses? If you’re talking about Kent Clothier, the answer is: a lot. The successful real estate business owner started his career at an everyday grocery store and ended up buying it for seven figures.

The Role of Education and Masterminds in Business Growth

Education plays a pivotal role in entrepreneurial success. Kent encourages all investors to network with other investors to learn from their experience and apply their lessons to their investment strategy.

Clothier’s decade-long friendship with Greg Herlean opened new avenues for learning, which helped him shape his successful real estate business strategies.

Beyond just doing deals, this relationship also lets them share insights on how best to grow their respective companies. They discuss everything from marketing materials to analyzing website analytics and leveraging their skill set to manage payment plans effectively.

Implementing the P5 Formula for Business Success

In real estate, achieving success is a combination of various elements working together. One proven strategy that has helped many real estate investors succeed is Kent’s P5 formula. This powerful approach revolves around identifying prospects, defining processes, maximizing profits, and measuring progress.

Identifying Prospects in Real Estate

The first step in this journey toward success involves pinpointing potential opportunities or prospects. You might need to use social media platforms or other lead-generation tools to find them. But remember – not all leads are created equal. It’s essential to distinguish between potential customers who can advance your organization and those who won’t offer much in the way of benefit.

A crucial part of this process often involves working with reliable real estate agents who understand the market dynamics and have an extensive network at their disposal. A seasoned agent will give you access to deals before they hit mainstream channels like direct mail listings.

Defining Processes for Efficient Property Management

The second component entails setting up effective systems.

To effectively manage properties under your care as a property manager requires implementing robust strategies that save time yet provide maximum results – think automation.

This two-pronged focus on prospect identification and process definition forms an integral part of Kent’s celebrated P5 formula—a testament that it isn’t just about having resources; what counts more is how well you use them.

Building a Successful Real Estate Portfolio

Growing your real estate business requires strategic planning and savvy decision-making. One key strategy is building a solid real estate portfolio.

Holding Properties as Assets

Real estate investing strategies often revolve around buying properties to hold as assets. These can serve as steady sources of income, especially if you have renters providing regular payments.

In the words of seasoned professionals like Kent Clothier, holding properties long-term is one-way successful real estate investors build wealth. It’s not just about quick flips; it’s also about creating sustainable cash flow that keeps your business running smoothly even in fluctuating market conditions.

You don’t need to start big—small investments made wisely can lead to substantial growth over time. Remember: Rome wasn’t built in a day.

Horizon Trust, where I work closely with clients on their investment strategies, often sees this approach yield impressive results for our customers who are scaling up their portfolios using self-directed IRAs or 401(k)s.

FAQs: How to Scale and Grow Your Real Estate Business

What are the key elements of a successful real estate business plan?

A successful real estate business plan should include:

• Clear identification of target markets and demographics.
• Well-defined short-term and long-term goals.
• Comprehensive financial planning and budgeting.
• Strategies for effective resource allocation and cash flow management.

How can technology enhance property management processes?

Technology can enhance property management by:

• Streamlining operations through property management software.
• Improving communication with clients using customer relationship management (CRM) tools.
• Automating routine tasks to increase efficiency.
• Providing real-time data for better decision-making.

What are the benefits of strategic partnerships in the real estate industry?

Strategic partnerships in the real estate industry provide networking opportunities within the industry, the potential for joint ventures and collaborative projects, cross-promotion with other real estate professionals, and increased community involvement with diversified business opportunities.

Ever wondered how to make your golden years truly sparkle? Imagine yourself lying on a beach, the grains of sand beneath your body and tranquil ocean waves lapping in the background. But wait! It’s not just any vacation; it’s one funded by savvy investments made using something you already have: retirement accounts.

A little-known secret is that these aren’t limited to stocks or bonds; they can be a stepping stone into real estate investments, too. 

Just like discovering an old treasure map leading straight to buried gold, many Americans are sitting on dormant 401(k)s without even realizing their potential power.

We’re about to take an exciting journey exploring this less-traveled path toward wealth creation and financial security for those twilight years.

Get ready. We’re about to dive deep into self-directed IRAs. We’ll explore ways you can tap into your dormant 401(k) accounts for better financial control and future planning.

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Understanding Retirement Accounts and Their Potential

The potential of retirement accounts extends far beyond traditional savings. These accounts, in fact, serve as potent financial tools that can unlock a world of investment opportunities.

Retirement accounts are widespread across the United States. The Social Security Administration reveals an astonishing statistic: there are over 130 million retirement accounts totaling more than $13 trillion. 

This figure paints a picture not only of prevalence but also of the immense financial weight these funds carry within our economy.

Types of Retirement Accounts

Different types offer different benefits. Two of the most popular retirement accounts are 401(k)s and Individual Retirement Accounts (IRAs), both offering distinct benefits. 

A typical 401(k), offered by employers, lets you invest pre-tax dollars, while IRAs allow for both pre and post-tax contributions depending on their type, Traditional or Roth IRA, respectively.

The Power of Self-Directed IRAs

Self-directed Individual Retirement Accounts (SDIRAs) aren’t your typical retirement plans. A Self-Directed IRA is like a hidden ingredient in the kitchen of an expert cook, providing that distinct taste you can’t quite identify but makes everything better.

An SDIRA isn’t much different from traditional or Roth IRAs. But it’s got an edge—think of it as an Olympic sprinter with high-tech shoes. 

It lets you invest not just in stocks and bonds but also in real estate, gold, and even cryptocurrencies. In fact, this flexibility has helped boost its popularity among savvy investors—it’s no surprise there are over 97 million IRAs across the U.S.

Benefits of Self-Directed IRAs

This type of account offers incredible benefits that go beyond conventional investment opportunities. Imagine being able to use tax-advantaged dollars to purchase rental properties or invest in precious metals. It puts control back into your hands—you get to call the shots about where your money goes.

So if diversifying beyond Wall Street sounds good—and let’s face it, who doesn’t want more options?—then maybe a self-directed IRA is just what you need for some serious financial cooking.

Leveraging Dormant 401(k) Accounts for Real Estate Investment

Many of us have dormant 401(k) accounts lying untouched, but did you know they could be a goldmine for real estate investments? With over 30 million inactive accounts in the U.S., there’s immense untapped potential.

Identifying Dormant 401(k) Accounts

Uncovering a dormant 401(k) account is the initial step. It usually happens when we switch jobs and forget to roll over our old account into the new one. Reach out to your previous employers or check your past paperwork; these can help clarify any lingering funds.

The IRS also provides some tools that might assist in this hunt. For instance, their Rollover Chart tells about what types of retirement plans can be rolled into another.

Converting Dormant 401(k)s into Real Estate Investments

Dormant doesn’t mean dead. You can breathe life back by rolling them into a self-directed IRA – it’s like unlocking hidden treasure.

This rollover process lets you invest those funds in non-traditional assets like real estate – which offers potentially higher returns than typical stocks or bonds held by regular IRAs.

Horizon Trust, a custodian specializing in self-directed IRAs, makes this conversion process smooth and compliant with tax laws. They are experts at helping investors make use of such opportunities wisely.

Real-Life Success Stories with Retirement Account Investments

When it comes to using retirement accounts for real estate investments, the stories of successful investors serve as powerful motivators. They prove that these investment strategies are not just theoretical but can lead to tangible results.

Ryan Pineda’s Investment Journey

A prime example is Ryan Pineda, a real estate investor who has effectively leveraged his retirement account into lucrative ventures. His journey started when he decided to tap into his dormant 401(k) and use those funds in the thriving world of real estate investing.

Pineda didn’t simply plunge headlong into this new venture. He first ensured he had all the necessary legal knowledge about using retirement funds for property deals. Then he sought help from Horizon Trust, an established trust company that manages self-directed IRAs.

What’s the takeaway? Pineda’s flourishing career in real estate and various other ventures serves as a shining example. It shows what can be accomplished when you cleverly use your retirement savings to your advantage. “If I managed it,” asserts Pineda, “there’s no doubt that you can too.”

Getting Started with Retirement Account Investments

Beneath the surface of an attractive real estate deal lies a complex web of legalities, requiring careful navigation for successful retirement account investment. But it’s not just about spotting a good deal; you need to understand the game’s rules too.

Understanding the Legalities

Navigating through IRS codes and regulations might seem like deciphering hieroglyphics, but they’re essential to avoid costly penalties. For instance, did you know that using an IRA for personal benefit before reaching 59½ could result in tax liabilities?

Familiarizing yourself with IRS guidelines on self-directed IRAs can save you from potential pitfalls down the line.

Partnering with the Right Trust Company

Your choice of trust company will make or break your journey into real estate investing. A competent custodian doesn’t only help maintain compliance; they provide guidance every step of the way.

The right partner makes all the difference, much like Horizon Trust does by managing over 15,000 accounts and $300 million in assets – quite impressive!

Exploring Investment Opportunities

You don’t have to be a seasoned investor to spot profitable deals. With due diligence and some homework on market trends, even beginners can find hidden gems out there.

For inspiration, look at Ryan Pineda, who turned his baseball career into successful investments leveraging self-directed IRAs for property flips across Nevada.

Leveraging retirement accounts in real estate is no longer a secret. It’s the treasure map you’ve been holding all along.

Remember, self-directed IRAs offer control and tax benefits that can make your golden years shine brighter.

Dormant 401(k)s are not dead ends but untapped opportunities waiting to be explored for wealth creation. Make sure you recognize their potential power!

The success stories we shared underline one key point: With careful planning, investing retirement funds into real estate can yield great rewards.

Take note of legalities and choose a reliable trust company for managing these investments wisely. Explore promising investment avenues as they come along, just like Ryan Pineda did with Iowa properties.

FAQs in Relation to Leveraging Retirement Accounts in Real Estate

Can you use retirement funds to invest in real estate?

Absolutely. With a self-directed IRA or 401(k), you can direct your retirement savings towards real estate investments.

How do you leverage real estate for retirement?

You tap into the power of rental income, property appreciation, and tax advantages by buying properties with your self-directed IRA or 401(k).

Can I leverage my 401k to buy a house?

Yes, but only through specific methods like loan provisions or rollovers into self-directed IRAs that allow investment in real estate.

Can I roll my 401k into real estate?

Sure thing. You’d typically roll over your traditional 401(k) into a Self-Directed IRA, which then allows investing in property.

Learning how to create generational wealth can feel like an uphill battle.

The concept seems elusive, almost mythical. But it’s what separates the paycheck-to-paycheck hustler from the financially free individual.

If you’re unsure about building sustainable wealth that lasts generations, you’ll never reach this level of financial freedom.

Making sense of investments, assets, and smart money moves is tough stuff.

Take, for instance, a young professional who recently told me he feels overwhelmed by all the financial advice out there. He didn’t know where to start in his journey toward creating generational wealth.

No surprise there!

In fact, without proper guidance and knowledge, most people won’t.

But Self-Directed IRAs can change that—and quickly. The video below explains it all.

Join Greg Herlean and Justin Colby as they go in-depth about Self-Directed IRAs. They cover everything from how to start self-directing, how to use a self-directed IRA to invest in real estate, and how to create tax-free gains using creative financing.

Learning More About Self-Directed IRAs

The world of self-directed IRAs is vast and filled with numerous rules and regulations.

Understanding these guidelines not only protects your financial assets but also optimizes their growth potential.

The IRS stipulates specific instructions regarding the permissible types of investments within a Self-Directed IRA, how transactions should be conducted, and what qualifies as prohibited transactions. These can seem intricate at first glance, but this is where expert advice comes into play.

Free Consultation – Understanding Your Options

A no-cost consultation with Horizon Trust–a company I founded that’s a leading provider of retirement account services–can offer invaluable insights to navigate through the intricacies of Self-Directed IRAs effectively.

Horizon Trust offers educational resources designed to boost your overall financial literacy in this area. They believe that well-informed investors make better decisions, and they’re committed to empowering you with the knowledge necessary to create generational wealth.

Remember: Building generational wealth isn’t about quick wins—it’s about making strategic decisions now that will pay off for future generations. And part of those strategic decisions involves proper tax planning—a key aspect where many families lose out due to a lack of knowledge or preparation.

Book today for an enlightening free consultation session and take control of your family’s financial future by exploring how a self-directed IRA might fit into your strategy.

Creating generational wealth is not a myth; it’s achievable.

You’ll need strategic planning and smart investments to achieve your financial goals. Self-directed IRAs offer an effective path toward achieving this goal thanks to their tax advantages, flexible investment options, and potential for creative financing.

Ready to begin your journey towards a secure financial future? Visit Horizon Trust today. Learn more about how self-directed IRAs can help create generational wealth while enjoying the tax benefits they provide.

Unlike workers, self-employed business owners and freelancers often need to figure out their retirement plans on their own.

While some of the rules and regulations surrounding IRAs and 401(k)s can appear a bit confusing, finding the right retirement plan for self-employed people is simple.

What’s more, it’s even possible to create a match plan for employees if you own a small business that employs others.

So, let’s look at the five best retirement accounts for self-employed people to see which is right for you.

What is the Best Retirement Plan for Self-Employed Individuals?

Retirement Plan	Contribution Limit	Matching Contributions for Employees	Investment Types	Plan Administrator
Traditional/Roth IRA	$6,500 Annually (+$1,000 catch-up for 50 or older)	No	Stocks, bonds, and mutual funds	Brokerage
Self-Directed IRA	$6,500 Annually (+$1,000 catch-up for 50 older)	No	Alternative Assets (ex. Real estate, gold, loans)	Custodian
SEP IRA	20% of net income (see: net profit from IRS Schedule C reduced by the deductible self-employment tax) up to $330,000 annually (2023)	25% of net earnings up to $66,000 annually (2023)	Stocks, bonds, and mutual funds	Brokerage
SIMPLE IRA	$15,500 (2023)	Dollar-for-dollar up to 3% of employee compensation	Stocks, bonds, and mutual funds	Brokerage
Solo 401(k)	$66,000 ($7,500 catch-up rate)	No	Alternative Assets (ex. Real estate, gold, loans)	Brokerage or Plan Trustee

1. Traditional/Roth IRA

Individual retirement accounts are standard retirement accounts, which are great for self-employed people or not offered a retirement plan by their employer. In general, there are two types of individual retirement accounts: Traditional and Roth IRAs.

A Traditional IRA lets you direct pre-tax income toward investments for tax-deferred growth. Capital gains and dividends taxes aren’t assessed until a withdrawal is made.

Roth IRAs allow you to invest post-tax dollars in your account, meaning you won’t get taxed at withdrawal. In essence, this allows you to avoid capital gains in a tax-sheltered account.

Traditional IRA Benefits

• No income limit.
• Allows for some annual tax deductions.
• Tax-deferred growth. No taxes on earnings and contributions until required distributions begin at age 72—73 if you reach age 72 after 12.31.2022. Money earned in a Traditional IRA can also be deductible for the contribution’s tax year.
• Traditional IRAs allow you to invest in nearly all stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
• Unlike 401(k) accounts, IRAs have early withdrawal exceptions that make it possible to take out money to cover expenses for college, adopting a child, buying a first home, and more.

Roth IRA Benefits

• Qualified withdrawals in retirement are entirely tax-free.
• Roth IRAs do not have required minimum distributions (RMDs) during your lifetime.
• Roth IRAs allow you to continue contributing as long as you have earned income, regardless of your age.
• You can withdraw your contributions (but not earnings) at any time without penalties or taxes.
• Roth IRAs can be passed on to your heirs without them having to pay taxes on the distributions, provided certain conditions are met. See more information here.

Primary Differences

• Traditional IRAs allow investment with pre-tax dollars, and Roth IRAs with post-tax dollars.
• Traditional IRAs don’t have income limits, but they have age limits.
• Roth IRAs are not tax deductible, but you won’t ever pay taxes on any withdrawals of contributions.

Both retirement accounts are excellent for self-employed individuals. However, they do come with limited investment options, which makes our next pick that much more appealing.

2. Self-Directed IRA

A self-directed individual retirement account (SDIRA) is an IRA that allows you to invest in alternative assets prohibited by other IRAs. As the name implies, a self-directed IRA gives you full control over your investment decisions.

SDIRAs can be structured like a Roth or Traditional IRA, depending on your anticipated tax bracket at retirement.

Like the traditional IRA, the SDIRA allows you to save for retirement on a tax-advantaged basis.

However, SDIRAs offer greater flexibility regarding investments beyond stocks, bonds, mutual funds, and other common investments. For example, SDIRAs permit investments in:

• Limited liability companies (LLCs).
• Cryptocurrency and crypto staking.
• Limited partnerships (LPs).
• Private hedge funds.
• C corporations.
• Real estate investment trusts (REITs).
• Small businesses.
• Startup companies.

SDIRAs are advantageous because they allow for high returns and greater diversification.

Of course, investing in alternative assets also comes with a bit of risk. SDIRAs also come with higher fees and are administered by a custodian, which differs from your traditional brokerage account.

Almost anyone can open an SDIRA, and rollovers from any tax-advantage account can be completed tax-free.

Be sure to research self-directed IRA investment rules before investing.

Read More: How Do Self-Directed IRAs Work?

3. SEP IRA

Designed for both self-employed workers and small-business owners, Simplified Employee Pension plans (SEP IRA) allow you to set aside income for retirement without the enrollment and operating fees of conventional retirement plans. This is a common option when setting up a simple match plan for employees.

The SEP-IRA rule allows account holders to invest up to 25% of an employee’s compensation (up to $66,000 in 2023), making this a great choice for high-earning individuals. Here’s a rundown on how SEP IRAs work:

• Eligible participants are employees over age 21 who have worked for an employer for at least three of the past five years.
• Eligible employees must have earned at least $650 during 2021 and 2022.
• Employers must match all self-directed distributions for enrolled employees. For instance, an employer who stashes away 10% of their own compensation must contribute 10% to each employee’s compensation.

A SEP IRA can be combined with traditional and Roth IRAs, and all contributions are deductible.

There is no commitment to contribute every year after opening a SEP IRA. Additionally, no catch-up contribution option exists for people aged 50 and over with the SEP.

4. SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is a tax-deferred employer-sponsored retirement plan designed for small businesses with less than 100 employees.

A SIMPLE IRA allows an employer to make either non-elective contributions of 2% of each employee’s salary or dollar-for-dollar matching contributions of each employee’s contributions (up to 3% of salary).

While the maximum annual employee contribution for the SIMPLE IRA is $15,500 (2023), employees reaching age 50 and over can make additional catch-up contributions of $3,500.

5. Solo 401 (k)

Finally, the Solo 401(k) offers many of the same features as employer-sponsored retirement plans but with the added benefit of increased contribution ranges.

To contribute to a solo 401 (k), you must be a business owner with no employees. While the maximum contribution on the solo 401 (k) is $61,000 (2022), there’s a $6,500 catch-up contribution option if you’re age 50 or older.

A solo 401 (k) can be opened as either a Traditional or Roth account. With a Traditional solo 401 (k), contributions are made on a pre-tax basis to reduce your tax burden. Roth 401(k) contributions are made with after-tax dollars.

Some solo 401(K)s do allow for a wider range of investments, but this depends on your brokerage and whether you set yourself up as the plan trustee.

Read More: SEP IRA vs. Solo 401(k).

IRA Contribution Limits

IRA contribution limits are routinely adjusted for inflation. Typically, limits are determined using either a capped figure or salary percentage. Here’s a rundown of current IRA contribution limits for self-employed IRA options (2023):

• Traditional IRA: $6,500 ($7,500 over age 50).
• SDIRA: $6,500 ($7,500 over age 50).
• SEP IRA: 25% of compensation/$66,000. Self-employed individuals max out at $330,000 of their net income.
• SIMPLE IRA: $14,000.
• Solo 401(k): $66,000 (+$7,500 catch-up rate for people over age 50).

When considering any type of IRA, it’s important to factor in income bracket, expanded contribution allotments for age, and other stipulations that could allow you to invest the maximum amount possible while receiving a tax advantage on your employment income.

Which Self-Employed Retirement Plan Is Right for Me?

The Traditional or Roth IRA is a great starting point for someone who simply wants to start putting money in a retirement account when they don’t have any kind of savings incentive match plan from an employer.

However, self-employed people with high-income levels or employees should consider an SDIRA, SEP IRA, Simple IRA, or Solo 401 (k) to discover which features allow them to save for retirement while enjoying the biggest tax deduction.

Self-employed people catching up with retirement savings should also consider plans that increase maximum contributions after age 50.

Finally, everyone who earns income should open a retirement account. For self-employed people, a retirement plan can allow you to take a tax deduction on your tax return, reducing your taxable income.

For small-business owners, matching contributions can help elevate their status as desirable employers while providing them with a tax advantage.

FAQs: Self-Employed Retirement Plans

Can I contribute to both a Roth IRA and a retirement plan for my self-employed business?

Yes, you can contribute to a Roth IRA alongside your self-employed retirement plan. However, income limits for Roth IRA contributions may apply.

What are the benefits of a Solo 401(k) over other retirement plans?

A Solo 401(k) offers higher contribution limits, catch-up contributions for those aged 50 and above, and the option to make both employee and employer contributions.

Are there any tax benefits to contributing to a retirement plan as a self-employed individual?

Yes, contributions to certain retirement plans are often tax-deductible, which can reduce your taxable income for the year.

What happens if my business experiences fluctuations in income? Can I adjust my contributions accordingly?

Yes, many self-employed retirement plans allow you to adjust your contributions based on your business’s income for the year.