Does the Manager of an IRA LLC Need a Real Estate License?


Blog over.

Just kidding, but the answer is correct. The logic behind this is fairly straightforward, but there are some things that need to be explained.

Why an IRA LLC Manager Does Not Need a Real Estate License

Some people have to have a real estate license to work in the business. For instance, a real estate agent needs a real estate license. Someone who oversees the management of rental properties needs a real estate license. If the principal function of your job is the sale, management, renting, or leasing of a real estate property, then you need a real estate license.

However, if you own a company that performs these services, are performing these services for yourself, or are the principle in an LLC that performs these services, you have no need for a real estate license.

This is what you need to understand.

If you do have a real estate license and manage a self-directed 401(k) or self-directed IRA, it can actually trigger a prohibited transaction. In other words, the IRS will flag the transaction as illegal for the purposes of tax-deferral.

The IRS lists several kinds of transactions that are expressly forbidden for IRAs to execute. For example, you cannot own a business with your IRA that either you or a close family member runs or operates. You cannot own property with an IRA that either you or close family members rent or reside in. You cannot directly benefit from business transactions executed by your IRA. The only benefit you get is when it’s time to distribute the holdings. That would be when you reach the ripe old age of 59 ½.

Suffice it to say, having a real estate license and using your IRA to execute real estate trades could be seen as a conflict of interest. Not only do you not need it, but you don’t necessarily want it.

Dealing with Real Estate Held in Your IRA LLC

If you own real estate or you’re a principal of an LLC that owns real estate, you do not need a real estate license. If you’re an employee of that LLC whose duties include managing, selling, showing, renting, or leasing that real estate, then you do need a real estate license.

Basically, the rules that relate to all businesses held in an IRA are the same for real estate holdings. If you own an interest in a business through your IRA, then you are prohibited from the management or being involved in the day to day operations of that business.

What you can do, is hold real estate in your IRA and then earn a passive income from rent or the sale of the property. You can still use your IRA LLC to hire a property manager or have the IRA custodian handle expenses directly.

If you still have questions about this, it’s best to contact an IRA or tax professional.

Last Updated: 
May 15, 2018

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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