Non-Recourse loan from Uncle living overseas

4 Replies

I have a situation (explained below) and need some advice.

Background :

* My LLC and Solo 401(k) signed a Land Installment Contract on Dec 6th 2013. The percentage of ownership was 60-40 respectively.

* Both the entities are making payment to the Previous owner and have invested money on rehabbing the property.

* The property is ready for sale and we have buyers for the property. Their bank wants to property to be transferred/purchased to the Entity (LLC and 401k) before they close.

* The LLC has its share of 60% but the Solo 401K has a shortage of $45,000/-

Question :

My Uncle who lives in Canada is ready to give a Non-Recourse loan to my 401K and I would like to know if he is a qualified person for this transaction.

Also note that my Uncle wants to give it at a 0% interest. Not sure if this will impact anything.

Please let me know if any one had this experience or knows about this.

Thanks in Advance.

@Jithesh Prabhakar Not an attorney, not a CPA. But I can say that you'll have trouble with the IRS on a 0% loan: the rate discount would be taxed as a gift, I believe. Your uncle would have to charge you at least the Prime rate.

@Leon D. So I can get the loan from my Uncle, as far as he charges prime rate. Thanks for the info.

@Jithesh Prabhakar

You uncle will want to look into the tax implications for himself. If he makes the loan directly (i.e. personally) from Canada, there will be a withholding tax by the IRS on income earned. He will then given a credit for this withholding by the CRA when he files his Canadian taxes, but will have to pay the delta between the withholding and his Canadian income tax rate.

@Roy N. That's the main reason he does not want to earn any interest.

I am trying to find a friend in the USA who can lend. At least this way they get a 1099 from my 401K and they can show it as interest earned.

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