ForumsReal Estate InvestmentsState taxes on S401K sale of real estate

Forums Solo 401k Real Estate Investments State taxes on S401K sale of real estate

  • State taxes on S401K sale of real estate

    Mark Nolan replied 1 month, 3 weeks ago 3 Members · 3 Posts
  • 2 Replies
  • Laurie P

    Top SubjectReal Estate Investments
    Top ForumsReal Estate Investments

    Laurie P

    Laurie P

    Top SubjectReal Estate Investments

    December 1, 2022 at 5:44 am

    If I use my Solo 401K or Solo 401K ROTH to flip out-of-state property, do I need to do any state tax filings that year in the state where the property was located?

    Laurie P
  • Top SubjectReal Estate Investments
    Top ForumsReal Estate Investments

    RS RS
    Top SubjectReal Estate Investments

    December 1, 2022 at 6:40 pm

    You will probably need to file a state tax return but should not owe any state taxes.. You should ask a title company in the state where the property is located. Many states have a withholding of a certain percentage of the sale price for any non resident person or entity. You can sometimes apply for a waiver of the withholding but it can take weeks or months to get approved. Talk to a local title company. (I just went through this selling a property held by my 401k and the title company was required to withhold 8.5% of the sales price and send it to the state.

    RS RS
  • Mark Nolan

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

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions

    December 2, 2022 at 6:04 am

    First, frequently flipping rea estate in a retirement account such an IRA or a solo 401k plan may trigger unrelated business income tax UBIT. Reason being, such activity may be considered active vs passive. Retirement account investments such as real estate that are passive in nature don’t trigger UBIT.

    Flipping Real Estate Inside a Solo 401k Plan: Flipping homes is generally considered a trade or business activity. When a tax-exempt entity (e.g., Solo 401k or IRA LLC) engages in a trade or business on a regular or repeated basis, the income generated may be subject to Unrelated Business Income Tax (UBIT). While the industry consensus is that 1-2 flips per year would not expose the income to UBIT, a higher volume of flips increases that risk.

    With respect to your question regarding state tax filings, retirement accounts are subject to state (depending on your state of residence) and federal taxes when distributions are made by the account holder. Therefore, if the solo 401k owned property is sold, the proceeds flow back to the solo 401k so it is not considered a distribution but rather the sale of an asset (real estate) owned by the solo 401k plan. The proceeds continue to grow on a tax deferred basis in the case of a pretax solo 401k, and tax free in the case of a Roth solo 401k.

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