Arizona Self-Directed IRA Real Estate Guide 2026

What Is a Self-Directed IRA?

A self-directed IRA (SDIRA) is an Individual Retirement Account that allows you to invest in a much wider range of assets beyond stocks, bonds, and mutual funds — including real estate, private mortgages (notes), private equity, precious metals, cryptocurrency, and more.

The tax structure is identical to a regular IRA: Traditional SDIRAs grow tax-deferred and withdrawals are taxed as ordinary income; Roth SDIRAs grow tax-free and qualified withdrawals are completely tax-free. The critical difference is what you can invest in — and real estate is by far the most popular "alternative" asset for self-directed accounts.

Why Regular IRAs Can't Buy Real Estate

Standard IRA custodians — Fidelity, Vanguard, Schwab, E*TRADE — only allow investments in the products they can profit from: stocks, bonds, ETFs, mutual funds, CDs. They don't offer real estate because they have no mechanism to hold a deed, manage a property, or handle rental income. Self-directed IRA custodians specialize in holding these non-traditional assets.

How the SDIRA Works for Real Estate

1. Open a self-directed IRA at a specialized custodian (Equity Trust, Midland IRA, Entrust Group, etc.)
2. Fund the SDIRA through rollover from an existing IRA/401(k), or annual contributions
3. Direct your custodian to purchase a specific piece of real estate — the deed is titled to the IRA, not to you personally
4. All rental income, expenses, and sales proceeds flow through the IRA account
5. Growth inside the IRA is tax-deferred (traditional) or tax-free (Roth)

Why Arizona Real Estate is Ideal for SDIRA Investing

Arizona offers a combination of characteristics that make it particularly well-suited for SDIRA real estate investment:

1. Strong Rental Demand

The Phoenix metro is one of the fastest-growing major metros in the U.S., with net population growth of 50,000–75,000 people per year. This creates consistent, structural demand for rental housing. Phoenix's job market — led by semiconductor manufacturing (TSMC, Intel), healthcare (Banner, Dignity Health, HonorHealth), financial services (JPMorgan, State Farm, Wells Fargo), and tourism — attracts workers who need rentals during the months or years before they buy homes.

2. Landlord-Friendly Laws

Arizona is one of the most landlord-friendly states in the nation:

• Lease termination for non-payment: ARS §33-1368 allows landlord to terminate a lease and begin eviction within 5 days of written notice for non-payment (vs. 30+ days in California)
• Self-help eviction prohibited (must use court process) but courts are relatively efficient in Arizona
• No rent control: ARS §33-1329 prohibits cities from implementing residential rent control
• No mandatory grace periods for rent collection beyond what the lease specifies

3. No Arizona Capital Gains Tax Advantage Inside IRA

While Arizona's 2.5% income tax applies to capital gains at the state level, gains inside an IRA (whether traditional or Roth) are not subject to Arizona income tax while the money remains in the account. When traditional IRA distributions are taken, they're subject to AZ income tax as ordinary income — but there's a partial military retirement and Social Security exemption that may be available.

4. Diversified Investment Options

An SDIRA can hold multiple types of Arizona real estate assets:

• Single-family rentals (most popular — easiest to manage and value)
• Multi-family (duplexes through 4-plexes — higher yield, more complexity)
• Raw land (particularly TSMC corridor, Queen Creek fringe, and Buckeye growth areas)
• Private mortgage notes (lending SDIRA funds to real estate investors at 8–12% interest)
• Commercial property (industrial, small office, retail)
• Tax lien certificates (Maricopa County tax liens can be purchased at the annual tax lien sale)

Account Types — SDIRA vs. Solo 401(k)

Self-Directed Traditional IRA

• 2026 contribution limit: $7,000/year ($8,000 if age 50+)
• Tax treatment: Contributions may be deductible; growth tax-deferred; withdrawals taxed as ordinary income
• Required Minimum Distributions (RMDs): Must begin at age 73 (SECURE 2.0 Act)
• Funding: Annual contributions, rollover from 401(k) or other IRA
• Best for: Investors who expect to be in a lower tax bracket in retirement than today

Self-Directed Roth IRA

• 2026 contribution limit: $7,000/year ($8,000 if 50+) — with income phase-outs starting at $146,000 (single) / $230,000 (married filing jointly)
• Tax treatment: Contributions not deductible; growth tax-FREE; qualified withdrawals completely tax-free
• No RMDs during owner's lifetime
• Backdoor Roth: High-income earners who exceed income limits can contribute to a traditional IRA then convert to Roth (no income limit on conversions)
• Best for: Investors with long time horizons and/or who expect higher taxes in retirement; most powerful vehicle for long-term real estate compounding

Solo 401(k) — The Best Vehicle for Self-Employed Investors

For self-employed individuals (sole proprietors, LLC owners, 1099 contractors with no full-time employees), the Solo 401(k) is often the most powerful retirement vehicle for real estate investing:

• 2026 contribution limit: $69,000/year total ($76,500 if age 50+) — far exceeding the IRA's $7,000/$8,000 limits
• Employee contribution: Up to $23,000 (2026) as "employee" of your own business
• Employer contribution: Up to 25% of W-2 wages or 20% of net self-employment income as "employer" contribution
• Roth option: Many Solo 401(k) providers allow Roth designations within the Solo 401(k), creating the same tax-free growth benefit as a Roth IRA but with the much higher Solo 401(k) contribution limits
• Loan provision: Solo 401(k)s can include a loan provision allowing you to borrow up to 50% of the vested account balance ($50,000 max) from yourself — unlike IRAs which cannot lend to the account owner. This borrowed money can then be used as a conventional down payment on personally-owned real estate.
• UBIT exemption on leverage: Solo 401(k)s — unlike IRAs — are generally exempt from UBIT on leveraged real estate income (the technical argument is complex; verify with your tax advisor). This is a significant advantage for leveraged real estate investments.
• No IRS reporting until $250,000: Solo 401(k) plans with under $250,000 in assets don't require the annual Form 5500 filing that ERISA-covered plans require

Self-Directed IRA Custodians

Not every IRA custodian allows real estate investments. You must open your SDIRA at a custodian that specializes in non-traditional assets. The custodian holds your IRA assets in its name (as administrator), processes transactions, and files required IRS reports (Form 5498, Form 1099-R).

Major SDIRA Custodians (2026)

• Equity Trust Company (Westlake, OH): One of the largest SDIRA custodians with $34B+ under custody. Strong reputation for real estate transactions. Fees: account setup $50; annual asset-based fee starting around $225/year for smaller accounts.
• Midland IRA (Naples, FL): Highly regarded for real estate; transparent flat-fee pricing model makes costs predictable. Annual fee ~$300–$600 depending on assets.
• Entrust Group (Oakland, CA): Long-established SDIRA custodian; educational resources are excellent; real estate experience strong. Offices in Arizona.
• Alto IRA (Nashville, TN): More tech-forward platform; good for investors wanting modern interface; lower minimums; $10/month starter fee.
• IRA Financial Group: SDIRA and Solo 401(k) administrator; known for checkbook control structures; strong nationwide presence including Arizona clients.
• uDirect IRA Services (Irvine, CA): Popular with California and Arizona real estate investors; simple fee structure.

Custodian Fee Comparison

Checkbook IRA LLC — Speed and Control

The most sophisticated structure for serious SDIRA real estate investors is the "checkbook IRA LLC" — a self-directed IRA that has invested in a specially structured LLC, which then holds (or purchases) real estate directly. This structure solves one of the biggest practical problems with SDIRA investing: the custodian's involvement in every transaction.

Standard SDIRA Process Without Checkbook LLC

1. Identify property and execute purchase contract
2. Send direction letter to custodian with all property details
3. Custodian reviews and approves (takes 3–7 days typically)
4. Custodian wires funds to title company
5. Close on property — deed titled in IRA's name
6. Every future expense (repairs, property taxes, insurance, management fees) requires a direction to the custodian and processing delay

Checkbook IRA LLC Process

1. Your SDIRA makes a single investment: it purchases 100% of a newly formed Arizona LLC (e.g., "ABC Retirement Investments LLC")
2. The LLC has its own checking account — you are the manager
3. You identify a property and write a check directly from the LLC account to purchase it
4. The LLC (not the IRA directly) holds title to the property
5. Rent goes into the LLC checking account; expenses paid from the same account
6. No custodian involvement needed for each individual transaction

Checkbook LLC Advantages

• Speed: In competitive Phoenix markets (like the current one), being able to write a check immediately rather than wait 3–7 days for custodian approval can mean the difference between getting or losing a deal
• Lower transaction fees: Each custodian direction/transaction has a fee ($50–$200); checkbook structure eliminates per-transaction fees for routine expenses
• Flexibility: Can pay contractors, insurance, management fees, and other expenses immediately
• Multiple properties: One checkbook LLC can own many properties within a single custodian account

Checkbook LLC Risks and Requirements

• Must be a properly structured LLC for the specific IRA purpose — not your personal LLC or a business LLC
• IRA must be the 100% owner of the LLC — you cannot co-own the LLC personally
• MUST keep LLC funds completely separate from personal funds — commingling is a prohibited transaction
• Increased responsibility for compliance — with less custodian oversight, YOU are responsible for ensuring no prohibited transactions occur
• Setup cost: $1,500–$3,000 for proper structure by an SDIRA-specialized attorney
• Annual LLC maintenance: $50 Arizona Corporation Commission fee

Prohibited Transactions — The #1 Risk in SDIRA Investing

The IRS allows IRAs to invest in real estate under IRC §408, but IRC §4975 imposes strict "prohibited transaction" rules that, if violated, can disqualify your entire IRA — triggering immediate taxation of the full IRA balance plus a 15% excise tax. The consequences of a prohibited transaction are severe and usually irreversible.

The "Disqualified Persons" Framework

Prohibited transactions center around "disqualified persons" — people who are prohibited from directly or indirectly benefiting from your IRA's assets:

• You (the IRA owner)
• Your spouse
• Your parents and grandparents (lineal ascendants)
• Your children, grandchildren, and their spouses (lineal descendants)
• Any entity (corporation, LLC, trust) in which the above disqualified persons own 50%+ interest
• Fiduciaries of the IRA (the custodian, investment advisors with IRA discretion)
• Service providers to the IRA who receive 10%+ of their income from the plan

Note: Siblings, parents-in-law, aunts, uncles, and cousins are NOT disqualified persons. You could potentially sell a property you own with a sibling to your SDIRA (though this should always be reviewed by a tax attorney).

Common Prohibited Transactions to Avoid

• Selling personal property to your IRA: You cannot sell a property you own personally to your SDIRA, even at market value.
• Buying property from your IRA for personal use: When you buy a property with your SDIRA, you cannot live in it, vacation in it, or use it in any way — even for one night — while it's owned by your IRA.
• Allowing disqualified persons to use IRA property: Your spouse, children, or parents cannot stay in your IRA-owned vacation rental, even at market rates.
• Self-dealing on services: You cannot receive compensation for managing, repairing, or providing services to IRA-owned property. You can direct someone else to do it and have the IRA pay them.
• Lending IRA money to yourself: You cannot have your SDIRA make you a personal loan or mortgage.
• Pledging IRA assets as collateral for a personal loan
• Having your LLC (in which you have a 50%+ interest personally) do business with your SDIRA

UBIT — Unrelated Business Income Tax

Unrelated Business Income Tax (UBIT) — governed by IRC §511–§514 — is a tax that applies when tax-exempt entities like IRAs earn income from certain business activities or from debt-financed property. For SDIRA real estate investors, UBIT most commonly arises from using a non-recourse mortgage to purchase IRA property.

UBIT on Leveraged Real Estate (UDFI)

When an IRA borrows money (via non-recourse loan) to purchase property, the rental income attributable to the borrowed portion is called Unrelated Debt-Financed Income (UDFI) and is subject to UBIT. The calculation:

Example: Your SDIRA buys a $400,000 Gilbert rental with a $200,000 non-recourse loan (50% leverage). The property earns $30,000/year gross rent. $15,000 (50% — the "debt ratio" portion) of that rent is UDFI subject to UBIT. After allowable deductions (depreciation, expenses), the net UDFI might be $8,000. UBIT tax at trust rates (up to 37%) = approximately $2,960 per year.

This doesn't necessarily make leveraged IRA real estate a bad investment — the remaining $22,000 (the unleveraged 50% of income) is still tax-deferred/free in the IRA. But it does reduce the tax advantage and adds compliance complexity (Form 990-T filing required).

How to Minimize or Avoid UBIT

• Buy for all cash (no leverage): All-cash IRA purchases generate zero UBIT. The trade-off is reduced purchasing power — but tax-free returns can compound powerfully even without leverage.
• Use a Solo 401(k) instead of an IRA: Solo 401(k)s have a statutory exception (IRC §514(c)(9)) that generally exempts real estate UDFI from UBIT when purchased through a 401(k) plan investing in real estate. This is a significant structural advantage of the Solo 401(k) for leveraged real estate.
• Time paydown: As you pay down the non-recourse loan, the debt ratio decreases and the UDFI (and corresponding UBIT) decreases annually.
• Wait until the loan is paid off: Once the non-recourse loan is retired, there's no UDFI and no UBIT on the fully-paid-off property.

Non-Recourse Loans for IRA Real Estate

Traditional mortgages are "recourse" loans — the lender can pursue the borrower personally if the loan defaults. IRAs cannot personally guarantee a loan (that would be a prohibited transaction — you providing a personal guarantee to benefit your IRA). Therefore, IRA real estate mortgages must be "non-recourse" — the lender's only remedy upon default is the property itself. The borrower (the IRA) has no personal liability.

Non-Recourse Loan Requirements for SDIRAs

• Down payment: Typically 30–40% of purchase price (higher than conventional mortgage requirements)
• Interest rate: Typically 1.5–3% above conventional mortgage rates due to increased lender risk
• No personal guarantee allowed: No disqualified person (you, spouse, etc.) can personally guarantee the loan
• Lender underwrites the property: Since there's no personal recourse, the lender evaluates the property's income potential and value more strictly

Non-Recourse Lenders for Arizona SDIRA Real Estate

Non-recourse lenders for SDIRA real estate are a niche category. Active non-recourse lenders include:

• North American Savings Bank (NASB) — IRA loan program
• First Western Federal Savings Bank — SDIRA non-recourse specialist
• Pensco Trust (now Opus Investment Management) — IRA finance
• Local Arizona hard money lenders — some offer non-recourse structures for experienced investors
• Equity Trust and Midland IRA maintain lists of non-recourse lenders they've worked with for their clients

The SDIRA Purchase Process — Step by Step

Step 1: Open and Fund Your SDIRA

Choose your custodian, open your SDIRA account, and fund it via: direct contribution (up to annual limits), 60-day rollover from a distribution you've received, or direct rollover from an employer 401(k), 403(b), or other eligible plan. Direct rollovers (custodian-to-custodian transfers) are preferable — no 20% mandatory withholding and no 60-day risk.

Step 2: Identify Your Target Arizona Property

Work with Ryan Moxley to identify suitable properties. For SDIRA investing, key criteria:

• All-cash purchase or with non-recourse loan pre-approved (the IRA must have funds available)
• Property must generate income (rental income) — not personal use property
• Title will be in the IRA's name: typically "Equity Trust Company FBO [Your Name] IRA" (example format)
• Inspections, appraisals, and due diligence still apply — perform all standard Arizona real estate due diligence

Step 3: Execute the Purchase Contract

The purchase contract must be executed in the IRA's name, not your personal name. Your custodian will provide the correct format for your IRA account title. Ryan Moxley coordinates with the custodian to ensure the contract is correctly structured.

Step 4: Direction Letter to Custodian

You direct your custodian to fund the purchase via a "direction letter" — a formal instruction from you (as the account holder) to the custodian to disburse IRA funds for the real estate purchase. Include: property address and legal description, purchase price, earnest money amount, closing date, and instructions for title.

Step 5: Custodian Processes and Funds

The custodian reviews, approves, and wires funds to the Arizona title/escrow company for closing. In Arizona (dry-funding state), the wire must arrive by a specific deadline — typically the day before closing or the morning of closing. Coordination between your REALTOR®, title company, and custodian is critical.

Step 6: Property Management

You cannot manage the IRA property yourself and receive compensation for doing so. Options:

• Third-party property manager: Most SDIRA investors hire a professional property manager (8–10% of rent). The manager is paid by the IRA directly, not by you.
• Volunteer management: You can manage the property without receiving any compensation — but document this carefully. The IRS scrutinizes self-management of IRA real estate.
• Checkbook LLC with manager: Within a checkbook LLC structure, you as manager can direct operations but cannot take personal compensation.

Step 7: All Expenses Paid by IRA

Every expense related to the property must be paid by the IRA, not by you personally. If the IRA runs short of funds to pay property taxes, insurance, or maintenance, you must contribute additional funds to the IRA (within annual contribution limits) rather than pay expenses personally. This is a critical operational requirement — failure to keep all funds within the IRA structure can create prohibited transaction issues.

Step 8: Sale or Distribution

When you sell the property, all proceeds return to the IRA. Alternatively, you can take a "distribution in kind" — the IRA distributes the property itself to you (see Distribution section below). For traditional IRAs, the distribution of the property is a taxable event; for Roth IRAs after age 59½ with 5+ year account, distributions are tax-free.

Best Arizona Property Types for SDIRAs

Single-Family Rentals (SFR) — Most Popular

SFRs in the $250,000–$450,000 range are the most popular SDIRA real estate investment in Arizona. These properties:

• Are easiest to value, appraise, and finance
• Have the deepest tenant pool (families, professionals)
• Have manageable maintenance requirements
• Are most liquid when it comes time to sell

Best Arizona SFR markets for SDIRA: Mesa (85203, 85204, 85207), Chandler (85224, 85225), Gilbert (85233), Tempe, and Sun Lakes (55+ retirement rentals)

Raw Land — TSMC and Growth Corridors

Raw land in Arizona's high-growth corridors can be a compelling SDIRA investment, especially near the TSMC campus in Deer Valley/Happy Valley (85085–85087) or the Queen Creek/San Tan Valley fringe. Land doesn't generate rental income (avoiding UBIT entirely) and has minimal management requirements. The trade-off: no cash flow, longer holding period, and less predictable liquidity.

Private Mortgage Notes

Your SDIRA can lend money to real estate investors (not disqualified persons) at fixed interest rates, receiving promissory notes secured by Arizona real estate as collateral. This is called "private mortgage" or "trust deed investing." Typical terms: 8–12% interest, 1–3 year terms, 60–70% LTV. The SDIRA receives monthly interest payments — entirely within the IRA, growing tax-deferred or tax-free. No UBIT. No property management headaches.

Maricopa County Tax Lien Certificates

Maricopa County sells tax lien certificates at an annual auction (typically in February). These certificates represent unpaid property taxes, and the buyer (including an SDIRA) earns interest at rates set at auction — historically 3–16% annually. If the property owner fails to redeem the lien within 3 years, the lienholder can foreclose and take ownership of the property. SDIRAs can participate in Maricopa County's online tax lien auctions, and the interest earned accrues inside the IRA tax-deferred or tax-free.

Multi-Family (2–4 Units)

Duplexes, triplexes, and fourplexes (residential classification) can be purchased in IRA accounts. These offer higher income potential than SFRs, more complexity in management, and the same prohibited transaction rules apply. Popular SDIRA multi-family markets: central Phoenix, Tempe near ASU, and Mesa east.

The Roth SDIRA — Most Powerful Long-Term Real Estate Vehicle

If you're going to invest in real estate through a retirement account, the Roth SDIRA (or Roth Solo 401k) is the superior choice for most investors with a long time horizon. Here's the compounding math:

Roth SDIRA Real Estate Scenario

Scenario: You contribute $7,000/year to a Roth SDIRA for 5 years = $35,000 Roth SDIRA balance. You use this $35,000 as a down payment with a $105,000 non-recourse loan to purchase a $140,000 Mesa duplex. Over 20 years:

• Rental income: ~$1,500/month gross (conservative), growing 3%/year
• Property appreciates 5%/year: $140,000 → $371,000
• Loan paydown: $105,000 → ~$50,000 remaining after 20 years
• Net equity in IRA at year 20: $371,000 − $50,000 = $321,000
• Total rental income received over 20 years: ~$490,000 (gross; net after expenses much less)
• Total IRA value growth from this single investment: massive
• Tax on this income and appreciation in Roth IRA: $0 (zero)

The ability to grow real estate wealth — appreciation AND rental cash flow — completely tax-free, without RMDs, and for decades of compounding, makes the Roth SDIRA the most powerful retirement savings vehicle available to real estate investors who qualify.

Distributions — Taking Property Out of Your IRA

Distribution In-Kind (Taking the Property)

Instead of selling IRA property and distributing cash, you can take a "distribution in kind" — the IRA transfers the deed to you personally. The taxable event:

• Traditional IRA: You owe ordinary income tax on the fair market value of the property at the time of distribution (per FMV appraisal). If you're under 59½, add 10% early withdrawal penalty. The taxable amount is the entire property value, not just the gain.
• Roth IRA (qualified distribution): If you're 59½+ and have had the Roth account for 5+ years, the distribution in-kind is completely tax-free. You receive the property with a cost basis equal to its FMV at distribution — and can then use it personally or sell it immediately with minimal gain.

Beneficiary Distribution

If an SDIRA owner dies with real property in the account, the beneficiary must take distributions under SECURE Act rules (10-year rule for most non-spouse beneficiaries). The beneficiary can take in-kind distributions of the property or direct the IRA custodian to sell the property and distribute cash.

Common SDIRA Real Estate Mistakes

1. Using personal funds for IRA property expenses: Paying for a repair on your IRA property out of your personal checking account — even temporarily — can be a prohibited transaction or co-mingling violation.
2. Not having enough cash reserve in the IRA: Every IRA property needs a cash cushion for unexpected repairs (HVAC replacement, $6,000–$12,000), vacancy, and property taxes. Keep 5–10% of property value in liquid IRA assets alongside the property.
3. Allowing disqualified persons to use the property: Your adult child cannot stay at your IRA-owned vacation rental for free OR at market rate. One night of personal use disqualifies the IRA.
4. Buying a property to renovate and flip: Flipping inside an IRA is generally permitted but the IRS may argue that frequent flipping constitutes a "dealer" activity (not investment), creating UBIT on all gains. Long-term holds avoid this issue.
5. Not getting an independent FMV appraisal: When you make transactions involving SDIRA property — buying, selling, taking a distribution — you need a qualified independent appraisal, especially for transactions with any party connected to you.
6. Using the wrong LLC: The checkbook LLC must be established specifically for the SDIRA and owned 100% by the IRA. Using your regular business LLC or a personally owned LLC creates prohibited transaction risk.
7. Ignoring Arizona property tax obligations: IRA-owned Arizona real estate still owes property taxes. Property tax must be paid from IRA funds — not from your personal funds.

Advanced SDIRA Real Estate Strategies for Arizona Investors

The Roth Conversion Ladder for SDIRA Real Estate

High-income investors who can't contribute directly to a Roth IRA (due to income limits) can still access the Roth SDIRA through the "backdoor Roth" strategy:

1. Contribute $7,000 (2026 limit) to a traditional IRA (non-deductible contribution — no income limit applies)
2. Immediately convert the traditional IRA to a Roth IRA (no income limit on conversions since 2010)
3. The conversion is tax-free if you had no other traditional IRA balance (the "pro-rata rule" applies if you do)
4. After a few years of backdoor Roth contributions, you have a meaningful Roth SDIRA balance to invest in Arizona real estate

A married couple can do $14,000/year in backdoor Roth contributions ($7,000 each), building to $70,000 over 5 years — enough to buy a smaller Arizona rental property outright in many markets.

IRA Rollover Opportunity — Existing 401(k)s

If you have left a job or are considering leaving one, your existing employer 401(k) can be rolled into a self-directed IRA without tax consequences. This is often where SDIRA investors get their initial funding:

• Average American has $129,000 in 401(k) savings by their 40s
• A $129,000 all-cash SDIRA could purchase an Arizona SFR in the $125,000–$155,000 range (older Mesa, west Phoenix, Maricopa)
• Alternative: Use $129,000 as a 30–40% down payment on a $320,000–$430,000 property with a non-recourse loan
• Direct rollover to SDIRA: No taxes withheld, no 60-day risk, unlimited rollover amount

Partnering Your SDIRA with Personal Funds

Your SDIRA and your personal funds CAN co-invest in the same property — this is called "tenancy in common" co-investing and is allowed under IRC rules as long as both parties pay their proportionate share of expenses and receive their proportionate share of income. Example:

• You personally own 40% of a rental property (funded with personal cash)
• Your SDIRA owns 60% (funded with IRA cash)
• Rental income: 40% goes to you personally; 60% goes to your IRA
• Expenses: Same 40/60 split
• Caution: You must maintain strict proportionality and document everything carefully — mixing personal and IRA interests in the same property requires careful compliance management
• CANNOT self-deal: You cannot change the ownership ratio without going through proper sale/purchase at fair market value

Arizona DST (Delaware Statutory Trust) — Passive Real Estate in IRA

For SDIRA investors who want real estate exposure without management headaches, Delaware Statutory Trusts (DSTs) are worth knowing about. A DST allows you to purchase a fractional interest in a larger commercial real estate property (apartment complex, industrial building, storage facility) managed by a professional sponsor. Your SDIRA can invest in a DST as a passive investor.

Benefits for SDIRA investors:

• No management required — the DST sponsor handles everything
• Access to institutional-quality properties (Class A apartments, etc.) too expensive for individual IRA purchase
• Income passes through to the SDIRA
• Some DSTs can be used as 1031 exchange replacement property (note: 1031 exchanges are not applicable inside an IRA — but DSTs owned outside an IRA via 1031 exchange are common)

Finding Phoenix Real Estate for SDIRA Investment — Ryan Moxley's Approach

SDIRA buyers have specific requirements that make the property search different from a typical personal purchase:

Investment Property Criteria for SDIRAs

• Positive cash flow (all-cash): Since leverage triggers UBIT, many SDIRA investors buy for cash — requiring properties that cash-flow on a gross rent/value basis. Properties at 5–8% gross yield are the sweet spot in Phoenix metro.
• Minimal deferred maintenance: Every repair must be paid from IRA funds. A property requiring $40,000 in immediate repairs could strain the IRA's cash reserves. Look for move-in ready or recently renovated properties.
• Professional management-ready: Since you can't manage without compensation, the property should be in a location with reliable property management companies available (most Phoenix metro areas qualify).
• Clear title: Any title issues, judgment liens, or ownership disputes must be resolved — the IRA needs a clean title and cannot entangle itself in litigation involving disqualified persons' interests.

Top Phoenix Metro Areas for SDIRA Investment Properties

Based on yield (gross rent-to-value ratio) and management simplicity, Ryan Moxley recommends these Phoenix metro areas for SDIRA investors:

• Mesa (85203, 85204, 85205): Older neighborhoods with 3BR/2BA homes in the $280K–$380K range; rents $1,800–$2,300/month; gross yields 5.5–6.5%. Manageable maintenance; strong tenant pool.
• Phoenix (85015, 85017, 85019 — west side): More affordable price points ($220K–$340K); higher gross yields (6–8%) but higher management intensity. Not for first-time SDIRA investors.
• Glendale / Peoria (85301–85303 area): Mid-range ($320K–$450K) with reasonable yields (5–6%); proximity to Luke AFB provides stable military tenant demand.
• Sun Lakes / Chandler (active adult): 55+ community rentals targeting retirees; tenant stability is higher (longer stays), lower turnover, moderate yields (4.5–5.5%). Very manageable for SDIRA investors who want minimal headache.
• Maricopa / San Tan Valley (fringe): Highest gross yields (6–8%) in newer construction; longer commutes mean some tenant demographic challenges; newer homes mean lower near-term maintenance burden — good for SDIRA investors willing to be patient.

Arizona SDIRA Tax Considerations — State-Level

Arizona Income Tax on IRA Distributions

When you take taxable distributions from a traditional SDIRA (or Solo 401k), Arizona taxes these distributions as ordinary income at the 2.5% flat income tax rate. Arizona does NOT have a separate capital gains rate — all income (including IRA distributions from traditional accounts) is taxed at 2.5%. This is significantly lower than California (up to 13.3%), Oregon (up to 9.9%), or New York (up to 10.9%) — making Arizona a favorable state for retirees taking traditional IRA distributions.

Roth IRA Distributions — No Arizona Tax

Qualified Roth IRA distributions are exempt from both federal AND Arizona income tax. If you retire in Arizona and take qualified Roth distributions, your Arizona income tax on those distributions is zero — regardless of the amount. This makes Arizona an excellent state for Roth SDIRA investors who plan to retire here.

No Arizona Estate Tax on IRA Assets

SDIRA assets (including real property held in an IRA) are not subject to Arizona estate tax (which doesn't exist). Federal estate tax applies to taxable estates exceeding $13.99 million per individual (2025–2026) — most SDIRA investors won't face this issue, but large SDIRA real estate portfolios may eventually become relevant to federal estate tax planning for high-net-worth families.

SDIRA Real Estate Due Diligence — Specific Requirements

Due diligence for SDIRA properties is identical to personal purchase due diligence in most respects, with a few additions:

• Independent FMV appraisal: Before and after significant transactions involving SDIRA property — especially if co-investing with personal funds or any party connected to you. The IRS requires fair market pricing for all SDIRA transactions to prevent self-dealing.
• Title search and title insurance: Same as personal purchases. Title insurance should name the IRA as insured: "Equity Trust Company FBO [Your Name] IRA" (or equivalent).
• Property inspection: Full AZ general inspection; HVAC condition is particularly important given AZ summers — a failing HVAC in an IRA property is a surprise expense that must come from IRA funds.
• Insurance: Landlord policy (dwelling coverage + liability + rent loss) — premium paid from IRA funds. Most major insurance carriers will write a policy for IRA-owned property when properly instructed.
• HOA review (if applicable): HOA CC&Rs must allow rentals. HOA dues, special assessments, and fines must be paid from IRA funds — ensure the IRA has adequate liquidity.

Working with Arizona SDIRA-Knowledgeable Professionals

Successful SDIRA real estate investing requires a team:

• SDIRA Custodian: Equity Trust, Midland IRA, or similar (see custodian section above)
• Arizona CPA with SDIRA experience: Not every CPA understands SDIRA rules. Look for CPAs who advertise SDIRA or self-directed investing expertise. They handle Form 990-T (UBIT), track IRA basis, and advise on distributions.
• Arizona real estate attorney (for checkbook LLC): Must understand SDIRA prohibited transaction law in addition to general AZ corporate law.
• REALTOR® (Ryan Moxley): Understands SDIRA title requirements, custodian coordination, IRA-specific purchase contracts, and investment property selection in the Phoenix metro.
• Property Manager: Essential for SDIRA properties. Most Phoenix metro property managers are familiar with IRA-owned rental properties; confirm they can direct rent to a custodian-held account and have experience with IRA owners.

SDIRA vs. 1031 Exchange vs. Personal Investment — Arizona Comparison

When considering real estate investment vehicles in Arizona, it helps to compare the SDIRA approach against the two most common alternatives: buying in your personal name (taxable account) and using 1031 exchange for tax deferral.

When SDIRA Real Estate Makes the Most Sense

SDIRA real estate is most powerful when:

• You have significant existing retirement account balances (401(k) rollover) available to fund the investment
• You want tax-free growth (Roth) on a long time horizon
• You don't need the depreciation or mortgage interest deductions in your personal tax situation (perhaps your income is already low enough, or you're already in AMT)
• You want asset protection beyond what personal real estate ownership provides
• You're self-employed and can use a Solo 401(k) to maximize contributions and avoid UBIT

When Personal Ownership Makes More Sense

Personal ownership outside an IRA is often better when:

• You can personally use the property (primary residence, vacation home)
• Depreciation deductions are valuable to you personally (high W-2 income + real estate professional status)
• You want to use standard leverage (regular mortgage) — SDIRA non-recourse lenders are expensive and limited
• You plan to use IRC §121 exclusion on eventual sale (personal home)
• You want to implement a 1031 exchange strategy — 1031 exchanges are not possible inside an IRA

Many sophisticated Arizona real estate investors use both strategies: personally own their primary income-producing properties where depreciation and mortgage interest are valuable, and use their Roth SDIRA for passive, all-cash investments that will compound tax-free over decades. Ryan Moxley helps investors think through this allocation strategy and find the right Arizona properties for each approach.