Understanding UBIT in Real Estate Investing with a Loan | SDIRA | Equity Trust

In this video, John Bowens, Equity Trust's National Education Specialist, answers the commonly asked question, "What is Unrelated Business Income Tax?" as it relates to an IRA borrowing money to acquire income-producing real estate.
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Unrelated business income tax (UBIT) is a special tax that an IRA has to pay when the IRA borrows money to finance a real estate acquisition.
The percentage of property financed determines the percentage of profits from that acquisition, or net profit, that is taxable.
The first $1,000 in gains is not subject to UBIT. Proceeds above the first $1,000 are filed and the IRA pays the applicable tax.
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.

[@kayvonmansouri]

If your IRA sold the property would you have depreciation recapture like an individual would?

[@equitytrustcompany]

Yes, if your IRA sells a property, it can be subject to depreciation recapture, similar to an individual. This means the portion of the gain attributed to depreciation deductions taken in prior years would be taxed at the recapture rate.

[@bbq8282]

I have a property holding under my IRA through equity trust. It was 100% purchased from my account funding.
There are some renovations/energy upgrades I need to do. 1/2 of the cost will be covered by a USDA grants. We will be applying for a PACE loan through NOPEC Ohio for the 2nd 1/2 of the funding. The “loan repayment” will be structured as part of the property tax payments which is part of the expense item in this example.
Do I need to file UBIT tax?

[@equitytrustcompany]

This is a great question, and would be best for you to firm up the answer with your CPA or tax professional. If there is debt against the property owned by the IRA, UBIT would likely apply.

[@bbq8282]

My CPA does not do UBIT and I was trying to get referral from equity trust for CPA specializing on UBIT

[@equitytrustcompany]

I apologize, but we actually do not provide referrals for this circumstance

[@bbq8282]

i see Equity Trust Company provides 990-T form prep service. Are they completed by CPA who is familiar with UBIT?