One question I get all the time from investors using a Checkbook IRA for real estate is: how do you sell a property without setting off a tax nightmare? It’s a good question—and the truth is, exiting an IRA-owned property the right way just comes down to following a few key rules.

Keep It Inside the IRA

The most important thing to remember is that your IRA owns the property—not you personally. So when you sell it, all proceeds must go straight back into the IRA. No detours, no “temporary holds,” no personal checks.

If the money touches your personal bank account or you benefit from it directly, the IRS could treat it like a distribution. That means immediate taxes and possibly penalties if you’re under 59½.

Use an IRA-Approved Title Company or Escrow Service

You’ll want to work with professionals who know how to handle IRA-owned assets. The title company or escrow service should be ready to list your IRA’s name (not yours) as the seller, and send the sale proceeds directly back to your IRA custodian or your IRA-owned LLC bank account if you’re using a Checkbook IRA.

Skipping this step is a common mistake and can create reporting headaches—or worse, unintended taxable events.

Reinvest or Let It Sit

Once the sale is complete, you’ve got two choices:

• Reinvest: Use the funds to buy another property, invest in private lending, buy stocks, or any other IRA-allowed investment.
• Hold Cash: Let the money sit in the IRA bank account until you’re ready for the next move. Just be aware that excessive cash sitting long-term might not be the most efficient growth strategy.

And remember: any earnings from the next investment stay sheltered from taxes as long as they’re inside the IRA.

Watch Out for UBIT

If your IRA-owned property was debt-financed (you used a non-recourse loan), you might owe Unrelated Business Income Tax (UBIT) on part of the gains. It’s not the end of the world, but it’s a wrinkle you’ll want to plan for.

Talking to a CPA familiar with IRA real estate deals can save you major headaches here. The IRS has a quick overview on UBIT if you want to dig deeper. 

Quick Recap

• Always sell in the IRA’s name, not yours.
• Never touch the sale proceeds personally.
• Work with IRA-savvy escrow or title companies.
• Plan your next move to keep funds working inside the IRA.
• If there was debt, talk to a tax pro about potential UBIT.

Selling an IRA-owned property doesn’t have to be complicated—but it does require a little extra care. Stick to the right process, and you can exit smoothly without triggering unexpected taxes or penalties.

If you’re serious about making real estate a part of your retirement plan, understanding the exit is just as important as planning the purchase.