Informational simulation for Self-Directed Solo 401(k) trusts. Consult a qualified ERISA attorney or CPA for non-recourse lending and prohibited transaction compliance.
What this compares:

A rental property bought inside a Solo 401(k), with a non-recourse loan or all cash: the cash invested, the yearly cash flow and cash-on-cash return, the value and accumulated rent after 20 years, and the tax an IRA would owe holding the same property.

Self-Directed Real Estate Rental property

Solo 401(k) Rental Property Calculator

Cash flow and growth for a rental held in a Solo 401(k), and how the tax treatment differs from a self-directed IRA.

Property & Capital Structure

$

Non-recourse lenders require 30-40% down with 20-30 year amortization.

$
35%

401(k) Cash Invested

$122,500

35% down, 65% non-recourse loan

Net Annual Cash Flow

+$3,217 / yr

2.6% cash-on-cash, year 1

Tax on rental income in the 401(k)

$0

Real property debt of a 401(a) plan

Compared with a self-directed IRA

Debt a qualified 401(k) plan takes on to buy real property is generally not acquisition indebtedness, so its rental income is not taxed. An IRA has no such exception: the debt-financed share of the property’s net income, after expenses, interest and depreciation, is unrelated business taxable income, taxed at trust rates after a $1,000 deduction. The figure below is that tax for an IRA holding the same property, summed over 10 years.

Tax an IRA would owe on this rental (10 years): $19 over 10 years

Projected 401(k) Trust Equity & Accumulated Rental Income

Property Appreciation + Compounded Rental Cash Flow.

20-Year Growth

Total 20-Year Asset Value

$844,100

Accumulated Rental Cash

$158,186

Prohibited transaction rules to know

✅ Correct Titling:

"Your Name, Trustee of [Company] 401k Trust"

❌ No Self-Dealing:

You, your spouse, parents, or kids cannot live in or use the property (disqualified persons).

✅ Non-Recourse Debt:

You cannot personally guarantee the mortgage. Lender can only seize the property on default.

✅ Arm's Length Cash:

All rent checks must be deposited into, and all repairs paid directly from, the 401k checking account.

Educational estimate, not advice. Figures are illustrative; consult a professional for your situation.

What this calculator does

This calculator follows a rental property bought inside a Solo 401(k), either with a non-recourse loan for 65% of the price or for cash. It reports the cash the plan puts in, the first year’s cash flow and cash-on-cash return, the property’s value and the rent accumulated after 20 years, and the tax a self-directed IRA would owe on the same property, which a 401(k) generally does not.

How the math works

  • Loan. A 30-year non-recourse loan for 65% of the price, amortized month by month; the remaining 35% is the cash invested.
  • Cash flow. Rent minus operating expenses (a share of rent) minus loan payments. Rent and expenses are assumed to grow 2% a year; the loan payment does not.
  • Value. The price grows at the appreciation rate; equity is value minus the loan balance.
  • The IRA comparison. For an IRA, each year’s net rental income (rent less expenses, interest and straight-line depreciation on an assumed 80% building share over 27.5 years) is multiplied by the average loan balance over the average adjusted basis. After a $1,000 deduction it is taxed at the 2026 trust rates: 10% to $3,300, 24% to $11,700, 35% to $16,000 and 37% above. The figure is the total for 10 years.

Worked example

The defaults describe a $350,000 property with a 65% loan at 7.25%, $2,800 a month of rent, expenses of 35% of rent and 4.5% appreciation. The plan puts in $122,500. The loan payment is $1,551.95 a month, so the first year’s cash flow is $33,600 of rent less $11,760 of expenses and $18,623 of payments: $3,217, a 2.6% cash-on-cash return. After 20 years the property is worth $844,100 and the rent has added $158,186.

An IRA holding the same property would owe only about $19 of tax over 10 years at these defaults, because interest and depreciation leave little net income for the debt-financed share to tax. With $4,000 a month of rent it would owe $8,132.

How to read the result

Cash-on-cash return measures this year’s cash against the plan’s cash in the deal; with a loan it is usually low early on, because the payments absorb most of the rent. The 20-year value is driven almost entirely by the appreciation rate entered, which is an assumption rather than a forecast. The IRA figure shows how much the 401(k)’s real property exception is worth for this property; it is small when financing costs and depreciation consume the income and grows when the rent is high relative to the price.

Rent moves the result most. At $4,000 a month instead of $2,800, the first year’s cash flow rises from $3,217 to $12,577 and the cash-on-cash return to 10.3%. Buying for cash instead raises the year-one cash flow to $21,840 but on $350,000 invested, a 6.2% return.

Sources

Sources checked October 2026. The building share, rent growth and the 65% loan are assumptions of this calculator.

Common mistakes

  • Assuming an IRA and a Solo 401(k) are taxed alike on leveraged property. Only the 401(k) has the real property exception; an IRA can owe tax on the debt-financed share of income and of a gain on sale.
  • Overstating the IRA tax. The tax applies to net income after expenses, interest and depreciation, not to the rent or the loan; at the defaults it is close to zero.
  • Using the property personally or with family. A plan property cannot be used by the participant or other disqualified persons, including a spouse, parents or children.
  • Guaranteeing the loan. A personal guarantee would be a prohibited extension of credit; plan loans for real estate are non-recourse.
  • Reading the 20-year value as certain. It compounds the appreciation rate entered every year; a lower rate changes it more than any other input.

Frequently Asked Questions

Does a Solo 401(k) owe tax on a leveraged rental property?

Generally not on the rental income. IRS Publication 598 says debt a qualified 401(a) plan incurs to acquire or improve real property is generally not acquisition indebtedness, so the income is not debt-financed income. The publication lists six situations where the exception does not apply, such as a price that is not fixed at the date of purchase.

Why would an IRA owe tax on the same property?

IRAs are subject to the unrelated business income tax and have no real property exception. The debt-financed share of the property's income, the average loan balance divided by the average adjusted basis, is taxable after a $1,000 specific deduction, at trust rates that reach 37% above $16,000 in 2026.

Who counts as a disqualified person for a retirement plan property?

The IRS lists the plan's fiduciary and family members: the spouse, ancestors, lineal descendants and their spouses. A property bought by the plan cannot be used by them, sold to or bought from them, or used as security for their loans.

Why does the loan have to be non-recourse?

A personal guarantee from the plan participant would be an extension of credit between the plan and a disqualified person, which the prohibited transaction rules forbid; a non-recourse lender can look only to the property.

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