Question: I have an investment property, but I owe 100% on it. Can I use that self directed IRA to pay the mortgage? and then keep the property and the income in the IRA?
Answer: Unfortunately, the answer to your question is no, your IRA cannot be used to assist you in paying your mortgage on this property. Other than a rollover from one IRA to another, only cash may be contributed to your IRA. Additionally, it is a prohibited transaction to have a sale, lease or exchange of property between an IRA and a disqualified person (and you are a disqualified person as to your IRA) (See Internal Revenue Code, or IRC, Section 4975(c)(1)(A)). So you cannot convey the property to your IRA. Another prohibited transaction is that there can be no extension of credit between an IRA and a disqualified person (IRC Section 4975(c)(1)(B)), nor can there be a transfer to, or use by or for the benefit of, a disqualified person of the income or assets of an IRA. (IRC Section 4975(c)(1)(D).
The bottom line is that you may not use your IRA, either directly or indirectly, to benefit yourself right now, unless you simply take a distribution from the IRA and possibly pay taxes and penalties, depending on the type of account and your age.
I am sorry I wasn’t able to give you better news, but if you do need the services of a self-directed IRA Administrator or Custodian please do not hesitate to contact us.