For a real estate property owned by the pretax solo 401k where there is an outstanding non-recourse loan, the following applies prior to processing the in-kind conversion of the property from the pretax solo 401k to the Roth solo 401k.
1. Have the property appraised by a third-party valuation provider.
2. Then subtract the outstanding non-recourse loan from the fair market value of the property. 3. The value of the property for conversion reporting purposes will be the net value after subtracting the non-recourse loan.
Example: The value of the real property held in Jane’s pre tax solo 401k is $100,000 after having it appraised by a third-party valuation provider. The solo 401k owned real property also has an outstanding non-recourse loan amount of $25,000. After subtracting the outstanding non-recourse loan amount, the market value of the property is now $75,000 ( $100K – $25K). Therefore, the value to report on the Form 1099-R for the in-kind conversion of the real property to the Roth solo 401k is $75,000.
Note: The ongoing non-recourse loan payments will now need to be paid with funds from the Roth Solo 401k since after the in-kind conversion the property is now owned by the Roth solo 401k.
