Depreciation is wasted inside a self-directed IRA, so which assets actually belong there

Everything a self-directed IRA gives an owner on the income side, it takes back on the deduction side, and this trade-off doesn't get discussed enough when comparing an IRA-held rental to the same rental held personally. Inside the account there is no depreciation deduction that does anything, since there's no taxable income at the account level to shelter. No cost segregation study worth paying for. No passive losses carried forward against a future sale. No need for a 1031 exchange, since the account defers nothing by itself. And at distribution, no step-up in basis for heirs on the property itself. A Roth version answers most of that by making the eventual exit tax free, so the lost deductions cost nothing. A traditional version instead converts what would have been long-term capital gain outside the account into ordinary income on distribution. Run that through and the asset selection changes. A high-yield property with a small depreciation base relative to its rent, an older building in a cheap market with strong cash flow, gives up almost nothing by sitting inside the wrapper, and the tax-free rent compounds cleanly. A newer, heavier-basis property whose early-year returns lean on depreciation and appreciation tends to belong outside, where the deductions, the eventual capital gains treatment, and the step-up all do their job. Land is the strange case: no depreciation to lose and no income either, so the wrapper's only real gift is shielding the eventual gain. Notes are the other candidate worth naming, since interest is ordinary income outside the account and exempt from UBIT inside, making that structure's benefit especially large. Anything that turns on how a specific return would change belongs in front of a tax professional before it's acted on.