401k Real Estate Not Subject to Capital Gains Tax

Simply put, 401k Real Estate is not subject to capital gains tax.

QUESTION: Was wondering how capital gains taxes impact monies going into the 401k owned real estate; if I sell one of my investment homes and make a profit, and the money goes right back into the 401K, how is that treated at tax time?

ANSWER: Good question. Because retirement accounts like Self-directed Solo 401k plans are tax deferred accounts (also known as tax shelters), meaning that gains from investments in stocks, mutual funds, real estate, etc., flow back to the Solo 401k and taxes are not paid until you begin to make distributions from the Solo 401k, usually at retirement. Once distributions commence from a Solo 401k, the amounts are treated as earned income for tax purposes, not capital gains.

For Example:
Mark invests his Solo 401k in a rental property. When rents are collected, the funds flow back to the Solo 401k bank account and not taxes are paid. Further, in 10 years Mark sells the rental property for $600,000 and deposits the proceeds back to his Solo 401k bank account. Mark can now reinvest the Solo 401k funds in real estate or other allowable investments, or make a distribution provided he meets the Solo 401k distribution rules. If so, Mark will have to pay income taxes on the amount distributed, not capital gains.  

Thanks,

CT