ForumsReal Estate InvestmentsCan I use a solo 401k to flip real estate?

Forums Solo 401k Real Estate Investments Can I use a solo 401k to flip real estate?

  • Top SubjectSolo 401k,Real Estate Investments
    Top ForumsSolo 401k, Real Estate Investments

    David Ortega
    Top SubjectSolo 401k,Real Estate Investments

    April 26, 2024 at 10:09 am

    Can I use a solo 401k to flip real estate?

    David Ortega
  • Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions
    Top ForumsSolo 401k, Solo 401k Contributions

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions

    April 26, 2024 at 10:10 am

    Flipping real estate within a Solo 401k is possible but may trigger unrelated business income tax (UBIT) and additional reporting requirements.

    Here are the key points to consider: While Solo 401k plans allow investing in real estate, including flips, the IRS may view frequent flipping (e.g. more than 2 per year) as an active business activity subject to UBIT.

    UBIT applies to the profits from the real estate flips and is taxed at a high rate of around 38%.

    The Solo 401k owner is responsible for filing Form 990-T to report the UBIT and paying the tax.

    To avoid UBIT, it’s best to hold the real estate as a rental property rather than flipping it frequently.

    Rental income is not subject to UBIT.

    The property must be purchased from an unrelated party and sold to an unrelated party.

    Disqualified persons, such as the Solo 401k owner or certain family members, cannot be involved.

    All expenses and income related to the flip must flow through the Solo 401k account.

    The Solo 401k owner cannot perform any work on the property themselves .

    If the Solo 401k invests in a joint venture to flip properties, the other party must be unrelated.

    The joint venture agreement must be negotiated at arm’s length and the Solo 401k’s ownership interest properly documented.

    In summary, while Solo 401k plans allow real estate investments, frequently flipping properties may trigger UBIT and additional tax filing requirements.

Related Blog Posts

Log in to reply.