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