Costa Rica Real Estate – This is part of our series on buying real estate in Costa Rica. We hope to provide information needed to make an informed decision about purchasing land, condos, houses or commercial property in Costa Rica. If you want more information about this property or buying real estate in general you can request the free e-book, “Secrets of Buying Real Estate in Costa Rica”
Many IRA holders are oblivious to the fact that they can own real estate in their IRA. Over the years, bankers, brokers and even advisers have convinced buyers that they cannot own real estate in their IRA which is incorrect. In truth IRS allows a considerable deal of flexibility when it comes to investing the assets in a retirement account and you can definitely purchase real estate in Costa Rica using your IRA.
For those who are not familiar with the term, IRA or Individual Retirement Account is an option for people to save money for retirement in a tax-free growth or on a tax-deferred way. It is not an investment in itself rather it is a basket in which you can save stocks, bonds, mutual funds and other assets. With IRA, the tax benefits help your savings to grow faster than in a taxable account.
There are different ways for you to purchase real estate using your IRA; first is with the assistance of a custodian who has done transactions in Costa Rica in the past and second is by converting your traditional IRA to a self-directed IRA wherein you are responsible for deciding what investments to make. But no matter which one of the two you choose you would still need a Costa Rican real estate lawyer who knows the legal requirements and what needs to be done to ensure that you are getting what you are promised. The lawyer would also help you ensure that you are complying with the law and rules that are constantly evolving to put a stop to money laundering and terrorism.
With your IRA you can practically purchase any real estate available: raw land, condos, apartment buildings, office buildings, single family dwellings, multi-family homes and even improved land to be used for rental or future appreciation which in return can diversify your portfolio and provide you a more stable income. You may fully own a real estate or you can own a fraction of it with other buyers or entities owning the remaining fractions. You may purchase outright by using a land trust, a stockholder corporation, a limited liability corporation or a similar entity. You even have the option to roll over your IRA so you are buying the real estate with retirement assets. However, if the property is financed, you have to make sure that it is structured appropriately to prevent any unfavorable tax consequences. You must also ensure that the down payment is paid for by the plan and all future payments have to come from the plan assets, new contributions and/or revenue the purchased property may yield.
The IRS has clear and straightforward rules that define what you are not allowed to do. The general principle is your retirement plan is supposed to benefit you at retirement and not before. This is the reason why you may not, directly or indirectly, deal with yourself, your beneficiary or a disqualified person (spouse, ancestor, lineal descendant, and any spouse of lineal descendant). Simply said, you may not loan money, extend credit, provision goods, services or facilities to yourself or any named disqualified individual.
Other Requirements and Restrictions
- You may not buy the real estate from yourself
- The property may not be purchased from family members, except from siblings since the Internal Revenue Code (section 4975) defines that only “lineal descendants” are allowed.
- You and your spouse, ancestor, lineal descendant, and any spouse of lineal descendant is not allowed to lease or live in any investment property owned by your plan.
- Only retirement funds may be used as down payment.
- The property title has to be in the name of the retirement account.
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And so much more……..