Buying Turnkey Using An IRA or 401(k) - Jump Starting the Process

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@Brian Eastman I took you up on your offer and started the Thread: My Question was:

I sell Turnkey properties that I have taken over the loan Subject To. The loan stays in the name of the seller. Title transfers. It's done through escrow. Can someone with a SDIRA or Solo 401(k) etc buy the Turnkey ?

The numbers work this way. The value of the house is $225,000 with an underlying loan of $165,000 and I sell the Turnkey for $50,000. - So, a $50,000 fee comes from the Solo 401(k) to me.

Title is transferred to their Solo and the Solo 401(k) takes over making payments on the underlying loan that is not in their name. They do not assume the loan in the traditional sense. Or, is that a disallowed transaction?

If they can buy the Turnkey though their SDIRA or Solo 401(k) do they get the same depreciation and tax write-offs an individual would?

Your Answer: (For those who have the same Question)

Brian Eastman

Self Directed IRA & 401k Advisor from Boulder, Colorado

Best to start a new thread for something like this.

IRS rules simply prohibit an IRA or 401(k) account holder from placing a personal guarantee on a debt instrument. If the subject to transaction achieves this, which most do, then there is no issue.

The use of debt-financing does create a tax liability for an IRA investor. The percentage of income attributed to debt-financing is considered unrelated debt-financed income (UDFI). So, if a property is 60% debt-financed, 60% of the income is considered taxable and 60% of the normal deductions such as depreciation, interest on the note, etc. would apply to reduce that taxation.

UDFI taxation to an IRA typically does not add up to much. It would probably be about $250-$300/year in the example you are providing - depending on rent and expense figures. UDFI is a small cost for the benefits of leverage.

A Solo 401(k) is exempt from taxation on UDFI when the debt instrument is used for the acquisition of real property. A subject to deal is still considered acquisition indebtedness.

Brian Eastman

• Safeguard Advisors