Real Estate purchase

[dmb]

A client has found a commercial real estate parce to purchase. The property is a "Net Lease" with national credit tenant. The cost of the property is about $950,000. Can the client purchase a 50% interest in the property if the retirement plan purchases the other 50% interest???

If not, cna the client's mother or sister purchase 50% interest if the retirement plan purchases the other 50% interest??

Thanks.

[mbozek]

There is a question of why the owner wants plan to purchase an interest in the property. Generally a fiduciary cannot deal with plan assets if it will benefit his own personal account. IRC 4975©. Owning 50% of the property will provide a substantial benefit as an individual. If the plan is purchasing 50% of RE because the client cannot affort to pay for the parcel from his own funds then plan assets are being used to benefit the fiduciary for his own account. Certain family members of the client would be prohibited from purchasing the property as co -owner with the plan. You need to consult with counsel regarding the legality of this purchase.

Also there is an economic question as to why you would put RE in a pension plan and give up the benefits of captial gains/capital loss, loss of depreciation, interest deduction, etc. (Plans cannot use borrowed funds to purchase plan assets). You should consult with an acountant to determine if this purchase makes sense for the plan.

By the way I am assuming this purchase is for a qualfied plan, not an IRA.