I’ve had plenty of people ask me if they can use their Checkbook IRA to invest in short-term rentals. The answer? Yes—but you’ve got to play by the IRS’s rules. Done right, it’s a fantastic way to generate tax-deferred (or tax-free) income while growing your retirement savings.

Why Short-Term Rentals?

Unlike long-term rentals, short-term rentals can bring in higher income through nightly rates, especially in popular tourist spots. They also give you more flexibility—pricing can be adjusted seasonally, and demand often remains strong year-round.

But here’s the catch: if you’re investing through a Checkbook IRA, you can’t stay in the property yourself—not even for one night. The IRS prohibits personal use, and breaking that rule could disqualify your IRA.

IRS Rules You Can’t Ignore

The IRS is pretty strict when it comes to how you handle real estate inside a retirement account. If you’re using a Checkbook IRA to invest in a short-term rental, here’s what you need to remember:

• No Personal Use – You, your family, and even close business associates cannot stay in the property. See IRS rules on self-dealing: https://www.irs.gov/publications/p590a#en_US_2021_publink1000230987.
• All Expenses Must Be Paid from the IRA – Any mortgage, repairs, or taxes must be covered directly by the IRA’s bank account. More details from this Investopedia article.
• Rental Income Must Go Back to the IRA – The money you make from rentals must stay inside the IRA—it can’t land in your personal bank account.

If you violate any of these rules, you risk turning your tax-advantaged investment into a tax headache.

 Setting Up Your Investment the Right Way

If you’re serious about using a Checkbook IRA for short-term rentals, you need the right structure in place. Here’s what that looks like:

1. Set Up a Self-Directed IRA (SDIRA) – Work with a custodian who allows real estate investments.
2. Form an IRA-Owned LLC or Trust – This is what gives you “checkbook control” over investment decisions.
3. Fund the LLC or Trust – Transfer IRA money into the LLC or Trust’s dedicated bank account.
4. Buy the Property Through the LLC or Trust – The IRA (via the LLC or Trust) owns the property—not you.
5. Ensure All Transactions Stay Within the IRA – Rental income flows into the IRA, and expenses come out of it.

Short-term rentals can be a great way to build wealth inside a Checkbook IRA, but only if you follow the rules. The last thing you want is to lose your tax advantages over a simple mistake. If you’re serious about this strategy, talk to a tax or financial professional who understands self-directed IRAs before you jump in.

For official IRS guidance, visit IRS.gov: https://www.irs.gov