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What is UBIT? When does it occur? And how can I remain compliant?
If your IRA owns an asset or interest that produces unrelated business taxable income (UBTI), your IRA may be subject to an unrelated business income tax (UBIT) pursuant to Section 511 of the Internal Revenue Code.
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Is My IRA Responsible for UBIT?
UBIT applies if ALL of the following are true:
Income is derived from “trade or business” activity (i.e., sale of goods and services).
Business activity is not substantially related to exempt status.
Business is regularly carried on by organization.
Generally, IRA investments that can generate UBIT include:
Limited Partnerships (LPs),
Limited Liability Companies (LLCs), and
Any investment that incurs debt financing and/or is involved in an unrelated business.
What is UBIT? How does it affect my IRA investments?
In this short 5 minute video, you will learn:
When UBIT occurs
How unrelated debt financed income (UDFI) is calculated
When operational businesses such as LLCs or LPs incur UBIT
How the filing process works
How is UBIT calculated? How can I remain compliant with my IRA investments?
In this brief 10 minute video, UBIT will be covered in greater detail and you will learn:
Your options if you suffer a net operating loss (NOL) or have less than $1,000 in unrelated business taxable income
The ability to write off expenses and depreciation for rental properties that incur UBIT within an IRA
The trust tax rates that your IRA is taxed when it incurs UBIT
Proforma analysis of UBIT for a debt-financed real estate property
The 990-T filing process
Why operational businesses incur UBIT and how the process works
We also have put together a guide that dives into even more detail and specific information regarding UBIT. This report is a great resource to share with your CPA, tax professional, or other members of your financial team.
For more frequently asked questions, please visit the UBIT FAQ page.
To assist you in meeting filing requirements, Equity Trust Company is again offering Form 990-T preparation and IRS required electronic payments through the EFTPS (Electronic Federal Tax Payment System) to our clients for their IRAs. To learn more about your 990-T filing options please visit: www.trustetc.com/990T
Equity Trust Company is a directed custodian and does not provide tax, legal or investment advice. Any information communicated by Equity Trust Company is for educational purposes only, and should not be construed as tax, legal or investment advice. Whenever making an investment decision, please consult with your tax attorney or financial professional. Equity Institutional services institutional clients of Equity Trust Company. Brokerage Services Available Through ETC Brokerage Services, Member SIPC, and FINRA. *Founded in 1974 | Self-Directed IRA Custodian since 1983. The predecessor business to Equity Trust Company was established in 1974 and the IRS approved as a custodian in 1983. **Assets under custody as of 3/1/2020.
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