Some of the benefits of investing through a self-directed Roth IRA can also have a downside. Since you don't pay taxes on the rental income or capital gains in your Roth IRA you can't take advantage of the tax benefits of real estate investing. This means that you cannot benefit from depreciating your property, which can be extremely lucrative. In many cases, property owners make more money on the tax savings from depreciation than they do on the rental income.
Offsetting your rental income with expenses from mileage and other costs really don't have any benefit either.
Lastly, the ability to avoid capital gains taxes through a 1031(b) exchange does not help an investor in a Roth IRA.
In addition, there are strict rules for real estate investing through a Roth IRA. If you don't follow these properly you can lose the protected status of the money and have to pay an early withdrawal penalty.
Consider the positives and negatives carefully when deciding whether to buy real estate in a self-directed Roth IRA.
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