BACKGROUND: I have a solo 401k investment scenario for you. A person who has a solo 401k buys duplex on a tax lien auction and the duplex needs work to be put on the market as a rental.
QUESTION 1: Do the rehab expenses get paid for by the solo 401k?
ANSWER: Most certainly. Why? Well, because the duplex is a solo 401k asset. Therefore, only solo 401k proceeds may be used to improve the duplex property.
QUESTION 2: Can the person whose solo 401k it is ever partially or temporarily occupy the property?
ANSWER: No because the solo 401k owner/participant falls under the solo 401k disqualified person category. Occupying the property–even if rent is paid—would fall under the following specific prohibited transaction description found in I.R.C. 4975:
Furnishing of goods, services, or facilities between a plan (e.g. Solo 401k plan) and disqualified person.
Barbara in Minnesota