Adam Bergman

Founder, Tax Lawyer, Author

One of the most common questions I get is whether you can buy land with an IRA. You can. A Self-Directed IRA can hold raw land, residential lots, commercial parcels, and agricultural property, with the IRA itself as the titleholder. The same rules that govern any real estate in an IRA apply here, but land adds a few practical wrinkles because it usually produces no rent. Below I’ll walk through how the purchase works and where investors run into trouble.

How to Buy Land With a Self-Directed IRA

1. Open and fund a Self-Directed IRA. You can fund it with a rollover, a transfer from another IRA, or an annual contribution.
2. Find the parcel and do your homework. Confirm zoning, road access, survey, title, back taxes, and any liens or easements. Land often has less documentation than a house, so this step matters more than usual.
3. Make the offer in the IRA’s name. The purchase agreement should name the IRA as the buyer, not you personally.
4. Pay earnest money from the IRA. Earnest money has to come from IRA funds. Writing a deposit check from your personal account, even with plans to reimburse yourself, creates a problem.
5. Direct your custodian to close. Your custodian wires funds from the IRA, and title is taken in the IRA’s name, for example “[Custodian] FBO [Your Name] IRA.” If you have a checkbook control IRA LLC, the LLC takes title and you sign as manager.
6. Keep paying from the IRA. Property taxes, insurance, HOA dues, and any other costs come from IRA funds, and any income, such as a farm or hunting lease, goes back into the IRA.

Rules to Follow When You Buy Land With an IRA

The IRS prohibited transaction rules under Internal Revenue Code Section 4975 govern dealings between your IRA and disqualified persons. Disqualified persons include you, your spouse, your parents and grandparents, your children and grandchildren and their spouses, and entities in which these people own 50% or more. Siblings, aunts, uncles, and cousins aren’t on the list.

• No buying from or selling to disqualified persons. Your IRA can’t buy land from you or a disqualified person, even at fair market value. Buying a parcel from your father is prohibited. Buying one from your brother is not.
• No personal use. You and other disqualified persons can’t use the land for camping, hunting, storage, or anything else. One weekend can be enough to cause a problem.
• No sweat equity. You and disqualified persons can’t clear, grade, fence, or build on the land yourselves. Hire unrelated third parties and pay them from the IRA.
• No personal loan guarantees. Neither you nor a disqualified person can guarantee a loan for IRA property. This is exactly what sank the investors in Peek v. Commissioner.
• Keep funds separate. All expenses are paid from the IRA, and all income is deposited into it.

A prohibited transaction can disqualify the entire IRA as of January 1 of the year it happened, so check each step before acting. I cover the broader framework in my guide to Self-Directed IRA real estate rules and restrictions.

Pitfalls Specific to Land

No income to cover costs. Raw land has no rent, but property taxes still come due every year. The IRA needs enough cash on hand to pay them, because you can’t cover them personally and get reimbursed later. Paying an IRA expense with personal funds can be treated as a contribution, and possibly an excess contribution or a prohibited transaction. I usually tell clients to keep at least two to three years of carrying costs in cash inside the account.

Financing and UDFI. If the IRA borrows, the loan must be non-recourse, meaning the lender can look only to the property and not to you. The debt-financed share of any income or gain is subject to unrelated debt-financed income tax, which the IRA pays by filing Form 990-T. For gains, the tax is based on the highest debt balance in the 12 months before the sale, so paying the loan off more than a year before you sell can eliminate UDFI on the gain. Non-recourse lenders are a small pool, and for land they often require 40% or more down.

The Solo 401(k) advantage. If you’re self-employed, a Solo 401(k) is generally exempt from UDFI on real estate financed with qualifying debt. For a leveraged land deal, that can make it a better vehicle than an IRA.

Owner financing. Seller financing is common with land and is allowed, but it still has to be non-recourse, and the seller can’t be a disqualified person.

Subdividing and flipping lots. This is the land-specific trap I see most often. If your IRA buys a large parcel, subdivides it, and sells lots on a regular basis, the IRS may view the IRA as a dealer running a real estate business. Dealer income is unrelated business taxable income, so it’s taxed even inside the IRA. Holding land as an investment and selling it in one or a few transactions is much safer.

Illiquidity. Land can take a long time to sell, and the money is locked up until it does. That matters once you reach RMD age, because a traditional IRA has to distribute a required amount each year whether or not the land has sold.

Partnering. Your IRA can co-invest with you or others as tenants in common if all parties buy in at the same time, but the prohibited transaction rules still apply to the whole asset. No one can use the land personally, even someone who owns their share outside an IRA.

In-kind distributions. If you still hold the land at retirement, you can take it out as an in-kind distribution based on an appraised fair market value. From a traditional IRA that value is taxable income. From a qualified Roth IRA it comes out tax-free.

Final Thoughts

Land is one of the simplest real estate assets to own in a Self-Directed IRA. There are no tenants, no repairs, and often less competition from other buyers. It also earns no income, so the deal only works if the IRA can carry it until you sell. Do the due diligence on the parcel, keep enough cash in the account, stay far away from personal use and family deals, and think about your exit before you close. If you get those right, land can be a patient, tax-advantaged way to build retirement wealth.

This content is for educational purposes only and does not constitute legal, tax, or investment advice. Consult a qualified professional before making any investment decisions.