Unrelated Business Taxable Income (UBTI)

Under which situations would an IRA but subject to unrelated business taxable income (UBTI)?



The most common way that you see an IRA with UBTI is when it invests in a partnership that operates as a trade or business. Equipment leasing, oil and gas, and timber are just a couple of the types of partnerships marketed to IRAs thay generate UBTI. An investment in debt-related property can also generate UBTI. Rental real estate with a mortgage is a prime source but buying, selling and investing in stocks with a margin account generates income that is UBTI.



One cannot, of course, use margin directly in an IRA account. But I wonder if the indirect use of margin would generate UBTI.

Suppose that an IRA is converted to a Roth IRA and that the taxpayer chooses to pay the tax liability by taking a margin loan on a taxable account. Or perhaps the taxpayer pays the tax with a home equity loan and elects to deduct the interest on the loan as investment expense. The loan proceeds were clearly used as an additional contribution (the tax paid) to the IRA account. Is a portion of the earnings within the Roth IRA now UBTI?



Add new comment

Log in or register to post comments