There is a little known tax deduction that can, in many cases, transform a loss into a gain. This critical tax deduction is something many investors with UBTI miss.
You may be able to reduce or even eliminate any unrelated business income tax you may have been required to pay in future or prior years for a revenue-producing IRA investment.
This becomes especially powerful when you have multiple investments that incur UBIT within a single IRA because there is the potential to use a loss from one investment to write off against profits in another investment.
The Net Operating Loss (NOL): How to Turn a Loss to Your Advantage
In the event your revenue-producing property or entity investment experiences a net operating loss (NOL) on paper, the loss may often be carried backward or forward and applied as tax deductions in subsequent years. This may nullify a good portion, if not all, of the taxes you may have otherwise had to pay in years when there was no NOL.
How Does This Work?
When there is a net operating loss (NOL) in a specific taxable year, the amount of the loss may often be carried back for up to two tax years before the NOL occurred or carried forward for up to 20 years after the NOL occurred. You can choose which years you want to use the NOL to offset any taxes due. According to IRS Publication 536 you can choose not to carry-back and only carry-forward your losses.
How Do I Capture/Take Advantage of a Net Operating Loss?
As you have discovered, UBIT contains obscure deductions most investors are unaware of, but when identified and handled appropriately can provide additional benefits to IRA owners. In order to take advantage of these deductions the Form 990-T must be filed.
For more information contact UBIT Professional.