Explore Your Self-Directed IRA Options.
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Explore Your Self-Directed IRA Options.
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Yes. A Traditional IRA can move a rental house it owns into a Roth IRA without selling it. You owe income tax on the house's fair market value on the day it moves. A conversion counts for the year it happens, so it must be done by December 31 to count for 2026. It can't be undone.
It means the house changes accounts. Nothing gets sold. The tenant stays put.
What changes is when the tax gets paid. In a Traditional IRA, tax waits until money comes out. A conversion moves that bill to now. The tax law says the converted amount goes into your gross income for the year.
After that, qualified distributions from a Roth IRA are tax-free. Qualified has a set meaning. You are 59½ or older, disabled, or the money goes to your heirs after you die. And at least five tax years have passed since your first Roth IRA contribution.
Composite example for education. Not a real client. Not a recommendation.
Hank is 66 and lives in Pocatello. Years ago, his traditional self-directed IRA bought a small two-bedroom rental. The IRA owns the house. The rent goes to the IRA. The IRA pays the property tax, the insurance, and the plumber. Hank has never painted a wall there, and he never will.
This fall, Hank decides to convert. Here is what he does.
He opens a Roth IRA first. The house needs a Roth IRA to move into, so that account has to exist before anything moves.
He gets a value. The IRS uses the fair market value of property on the day it leaves the IRA. Hank's IRA hires an independent appraiser, someone with no family tie to Hank. The IRA pays the appraisal bill, because it is the IRA's house.
He plans the tax bill. Hank sits down with his CPA before he signs a thing. The value of the house will be added to his 2026 income. He plans to pay that tax from his own savings, outside the IRA. If he pulled cash out of the IRA to pay it, that would be a separate distribution, taxed on its own.
He signs in October, not December. Appraisers and title offices get busy near the end of the year. Mountain West IRA's standard processing time is three business days, with a 24-hour expedited option. The appraisal and the title work run on other people's clocks, so Hank gives them room.
The house moves. The title paperwork is updated so the Roth IRA owns the house. The lease stays the same. Hank also converts some of the IRA's cash, so the Roth IRA can pay the next insurance bill. That cash counts as income too. From now on, rent goes to the Roth IRA, and the Roth IRA pays the bills.
The forms show up early next year. Hank gets a Form 1099-R that shows the conversion at the house's fair market value. He reports it on Form 8606 when he files his 2026 taxes.
Now picture the other way. Say Hank waits until the week after Christmas. The appraiser can't come out until January. The conversion counts for next year instead. Or say he converts and then changes his mind. Too late. Since 2018, a conversion can't be switched back.
The account changes. The rules about who can touch the house do not.
Hank still can't stay there for a weekend. His son still can't rent it. Hank still can't climb up and fix the gutter himself. Our post on prohibited transactions covers who is off limits and why. For how rent and bills flow, see how cash flow works inside a self-directed IRA.
A late start is the big one. December fills up fast, and a conversion only counts for the year it is finished.
Paying the tax from the IRA is another. That pulls more money out, and that money is taxed too.
A guessed value is a third. The IRS wants fair market value, and a number someone made up is not that. A written appraisal from someone with no family tie gives you a paper trail.
Age matters too. If you are under 59½, each conversion starts its own five-year clock. Take converted money out before that clock runs, and the 10% extra tax can apply.
Mountain West IRA, a self-directed IRA Administrator in Boise, Idaho, processes each conversion at the account owner's written direction. We don't set the value, and we don't tell you whether converting fits your plans. That part is for you and your tax pro. If your IRA doesn't own a rental yet, our guide on buying a rental property with an IRA starts at the beginning.
If you want to talk through the steps and the timing before December, a free consultation with our team is a good place to start.
Ready to take more control of your retirement? Mountain West IRA can help you open a Self-Directed IRA or Solo 401(k), so you can invest in what you know best.
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If this topic sparked questions, reach out to our team. We are here to help you understand the rules, the process, and how self-directed retirement accounts work.
Not investment, tax, or legal advice. Check with your own financial advisor about your specific situation.
This post is for informational purposes only and should not be considered financial advice. Please consult with a financial advisor for personalized advice.
Mountain West IRA, Inc. does not render tax, legal, accounting, investment, or other professional advice. If accounting, tax, legal, investment, or other similar expert assistance is required, the services of a competent professional should be sought.
A self-directed IRA allows you to choose from a broader range of allowable alternative assets, including real estate, promissory notes, precious metals, and more.
Mountain West IRA provides the administrative and recordkeeping services to support your account and process transactions at your direction.
