UBIT (Unrelated Business Income Tax)

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 (UBIT), your IRA may be subject to an unrelated business income tax (UBIT) pursuant to Section 511 of the Internal Revenue Code.

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 your 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 two whitepaper PDF reports that dive into even more detail and specific information regarding UBIT. These reports are great resources to share with your CPA, tax professional, or other members of your financial team.

Report #1: Decoding Unrelated Business Taxable Income (UBTI) within an IRA

  • 10 pages
  • Specific citations for the Internal Revenue Code as it relates to UBIT and IRAs
  • What are UBTI and UBIT?
  • How is UBTI calculated?
  • Tax and Filing Form 990-T
  • UBIT at the State Level
  • UBIT and Multiple IRAs

Report #2: Understanding Unrelated Business Taxable Income within an IRA

  • 2 pages
  • When does UBIT apply?
  • Guidelines for using debt-financing in an IRA
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