Writing of expenses related to Real Estate Solo 401K

11 Replies

Hi everyone.

I am wrapping up a trip looking for a house to buy with a Solo 401K, to rent out. It will probably take me another two trips to finally get set up with one I like, as well as lining up the property manager, etc. I travel cheap, but each trip will still cost me $500-800. I understand the basics of prohibited transactions, but it still seems as though these travel expenses should somehow be able to be written off, or somehow paid for through the Solo 401K (when I finally set it up).

I am currently self-employed in an unrelated business.

It there any way to do this?

Thanks!

David

Hi David,

You bring up a great question. It sounds like in this situation you wouldn't be able to pay for the travel expenses with 401K funds. You would not be able to reimburse yourself. Let me know if you have any more questions David and I'd be happy to help.

Cody

Originally posted by @David B. :
Hi everyone.

I am wrapping up a trip looking for a house to buy with a Solo 401K, to rent out. It will probably take me another two trips to finally get set up with one I like, as well as lining up the property manager, etc. I travel cheap, but each trip will still cost me $500-800. I understand the basics of prohibited transactions, but it still seems as though these travel expenses should somehow be able to be written off, or somehow paid for through the Solo 401K (when I finally set it up).

I am currently self-employed in an unrelated business.

It there any way to do this?

Thanks!

David

You must be careful to not be using it for personal expenses or things that can be questioned. If you travel to a closing you can deduct that; however, if you stay three extra nights, not going to happen. You ould be able to write anything you pay personally off on Schedule A subject to a 2% AGI limitation(Basically the first two percent of your income is on you).

Medium hta logoSteven Hamilton II EA, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net

Originally posted by @Steven Hamilton II :

You must be careful to not be using it for personal expenses or things that can be questioned. If you travel to a closing you can deduct that; however, if you stay three extra nights, not going to happen. You ould be able to write anything you pay personally off on Schedule A subject to a 2% AGI limitation(Basically the first two percent of your income is on you).

This is written off from my business? (currently a DBA but soon to be converted to an LLC).

David

David why would you consider writing expenses of your 401k. Shouldnt you be considering lowering your taxable income. I do have the same scenario although the DBA is related. For now everything is being written off against the DBA. Havent yet thought of how the 401k will eventually be charged.

Here is the problem I see. The only expenses that should be paid OUTSIDE the 401k are the maintenance fees for maintaining the account with a custodian if there is one. Otherwise ALL EXPENSES related to the account's investments itself should be inside the account. To do otherwise is a prohibited transaction.

Medium hta logoSteven Hamilton II EA, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net

Originally posted by @Steven Hamilton II :
Here is the problem I see. The only expenses that should be paid OUTSIDE the 401k are the maintenance fees for maintaining the account with a custodian if there is one. Otherwise ALL EXPENSES related to the account's investments itself should be inside the account. To do otherwise is a prohibited transaction.

That makes sense. But is there a way to do this? Is there a way, for instance, to purchase an airline ticket from within the account? Even if it were legal, I can't imagine how.

Originally posted by @David B. :
Originally posted by @Steven Hamilton II:
Here is the problem I see. The only expenses that should be paid OUTSIDE the 401k are the maintenance fees for maintaining the account with a custodian if there is one. Otherwise ALL EXPENSES related to the account's investments itself should be inside the account. To do otherwise is a prohibited transaction.

That makes sense. But is there a way to do this? Is there a way, for instance, to purchase an airline ticket from within the account? Even if it were legal, I can't imagine how.

Yes, it is possible and legal. All you have to do is not incur any personal expenses while there. Treat it as though it was your employer. Reimbursement of those directly related expenses per diem etc.

Medium hta logoSteven Hamilton II EA, Hamilton Tax and Accounting | [email protected] | (224) 381‑2660 | http://www.HamiltonTax.Net

I've got a pretty good rats nest going on my solo 401K relating to travel expenses. I thought I saw something from you previously but can't find it now. I drive to my investments about 450 miles each way and stay in hotels. Do I use personal credit cards for all expenses then take a reimbursement from the LLC? Or do I pay all expenses with my LLC? And there is the matter of per diems, mileage, etc. To make matters worse, I've paid for travel expenses from both personal and LLC accounts and have to straighten that out. Suggestions?

it is my understanding that these type expenses are not deductible in self directed retirement accounts.  You must treat somewhat like a third party 401k if you traveld to Atlanta to check out the coca-cola company head quarters before you invested in the coca cola company in your 401k and then went to thier annual meetings to make sure your investment was still sound, none of this travel would be deductible.  Your only allowed to passively invest in a retirement account if you start actively participating you may become subject Unrelated Business Income Tax.

Hope this helps,

Good luck