How can you leverage your retirement accounts to invest in real estate tax-free or tax-deferred?

3 Solo 401(k)

A solo 401(k) is another option for avoiding capital gains tax on property, especially if you are self-employed or own a small business. A solo 401(k) is a retirement plan that allows you to contribute as both an employee and an employer, up to a certain limit. You can also set up a solo 401(k) as a self-directed plan, which means you can invest in real estate and other alternative assets. Like a self-directed IRA, you need to follow the IRS rules and regulations, and you cannot use the property for your own benefit or deal with disqualified persons. The benefit of using a solo 401(k) is that you can contribute more than an IRA, and you can also borrow up to 50% of your account balance, up to $50,000, to invest in real estate.

4 Qualified opportunity fund

A qualified opportunity fund (QOF) is a relatively new way to avoid capital gains tax on property, thanks to the Tax Cuts and Jobs Act of 2017. A QOF is a special investment vehicle that invests in designated low-income areas, called opportunity zones, that are eligible for tax incentives. If you sell a property and invest the capital gains in a QOF within 180 days, you can defer paying tax on those gains until 2026, or until you sell your QOF investment, whichever comes first. You can also reduce your tax liability by 10% if you hold the QOF investment for at least five years, or by 15% if you hold it for at least seven years. Moreover, you can avoid paying any tax on the appreciation of your QOF investment, as long as you hold it for at least 10 years.