“Can I move my whole down payment into a self-directed IRA, buy a rental, and write it off against my income?”
A self-directed IRA rental can be a great investment, but it can’t be your write-off. In our September live Q&A, Laura Dohanes, CPA, and guest John Bowens of Equity Trust Company took a plan we hear a lot: move the down payment into a self-directed IRA, buy a rental, and deduct it against your salary.
Quick answer: No. The IRA owns the rental, not you, so its depreciation and expenses stay inside the IRA (where they can offset the IRA’s own UDFI tax if there’s a mortgage) and never reach your personal return. You also can’t simply “contribute” a down payment: 2026 IRA contributions are capped at $7,500 ($8,600 at 50+), though transfers from other retirement accounts have no annual dollar limit. Co-own with your IRA through an LLC and you generally have a partnership: everything splits by ownership, with its own tax return.
Laura started by separating two ideas people mix up. A contribution is new money you put in, and it’s capped: for 2026, $7,500 a year across your IRAs, plus a $1,100 catch-up if you’re 50 or older. If you’re a W-2 employee without a business, an IRA is usually your only self-directed option. A transfer or rollover moves money already inside retirement accounts into a self-directed IRA, and that has no annual dollar limit, though a 401(k) at your current employer usually can’t be moved while you still work there. So “moving my whole down payment” only works if the money is already in a retirement account.
Whether the IRA buys the property directly, through a checkbook LLC, or with a loan, the IRA owns it. You and your IRA are separate for tax purposes. If the rental produces losses, those losses stay with the income inside the IRA. They don’t show up on your return and can’t offset your salary. As John put it: your IRA can’t benefit you personally in the here and now.
You can buy a property together with your IRA, but co-owning puts you in prohibited-transaction territory, so the rules from the partnership question apply: you both buy in at the same time; ownership, profits and expenses stay in proportion to what each of you put in; you don’t personally guarantee a loan; and you don’t do the work on the property yourself. If you form an LLC for it, your IRA has one tax ID and you have another, so the LLC is a partnership, not a disregarded entity, which means an annual partnership return. Plenty of investors do this; just know the filing that comes with it.
Only your share. If you own 50% and your IRA owns 50%, you can’t take 100% of the depreciation and expenses. The partnership return splits them 50/50 and reports your share on a K-1, and because it’s a rental, the passive-loss rules may limit how much of a loss on your share you can use against your salary. The IRA’s share stays in the IRA. And if the property has debt, the IRA needs its depreciation and expenses to offset its own unrelated debt-financed income.
Income and growth inside the IRA aren’t taxed each year (tax-deferred in a traditional IRA, tax-free in a qualified Roth), with two exceptions paid by the IRA itself on Form 990-T: UDFI on debt-financed property and UBIT on business activity. You’re taxed when money comes out of a traditional IRA. None of the IRA’s deductions ever pass through to you.
Official IRS reference: IRS — Retirement Topics: IRA Contribution Limits
No. The IRA owns it, so the depreciation and expenses stay inside the IRA.
$7,500 across all your traditional and Roth IRAs, or $8,600 if you’re 50 or older, limited to your taxable compensation.
Yes, if everything is strictly pro rata. Through an LLC it’s generally a partnership that files its own return.
No, not while it stays in the IRA, unless the IRA owes UDFI or UBIT, which it reports on its own Form 990-T.
These answers come from our monthly open Q&A. Only newsletter members get the invite (real tax strategy for business owners, twice a week, no fluff).
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Guest: John Bowens, Director & Head of Education and Investor Success at Equity Trust Company, appeared as a guest. Custodians, including Equity Trust Company, do not provide tax, legal or investment advice.
Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Every situation is different. Talk to a qualified professional about your specific facts before making any decisions.
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