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    • UBIT Explained: An Overview
      • What Is UBIT?
      • When Does UBIT Occur?
      • Why Do I Have to File in an IRA
      • Isn’t UBIT a Double Taxation?
      • Why You Should be Glad to File
      • Turning a Net Operating Loss into a Gain
      • What Tax Schedule to Follow?
      • Understanding the Process
      • FAQs
    • Real Estate IRAs and UBIT
      • Your Real Estate IRA Investment Options
      • Why Debt Financing with a Real Estate IRA Investment Can be Beneficial
      • Obtaining Non-Recourse Loans and Finding Non-Recourse Lenders
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        • What Allocation of Income is Subject to UBIT?
        • How does Flipping or Wholesaling Real Estate Relate to UBIT?
    • Entities and UBIT
      • Why Does my IRA Have to Pay Taxes when Investing in a LP or LLC?
      • When Does my IRA Have to Pay UBIT When Investing in a LP or LLC?
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      • UBIT and Multiple IRAs
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UBIT Professional
  • Home
  • UBIT Information
    • UBIT Explained: An Overview
      • What Is UBIT?
      • When Does UBIT Occur?
      • Why Do I Have to File in an IRA
      • Isn’t UBIT a Double Taxation?
      • Why You Should be Glad to File
      • Turning a Net Operating Loss into a Gain
      • What Tax Schedule to Follow?
      • Understanding the Process
      • FAQs
    • Real Estate IRAs and UBIT
      • Your Real Estate IRA Investment Options
      • Why Debt Financing with a Real Estate IRA Investment Can be Beneficial
      • Obtaining Non-Recourse Loans and Finding Non-Recourse Lenders
      • Real Estate Frequently Asked Questions
        • What Allocation of Income is Subject to UBIT?
        • How does Flipping or Wholesaling Real Estate Relate to UBIT?
    • Entities and UBIT
      • Why Does my IRA Have to Pay Taxes when Investing in a LP or LLC?
      • When Does my IRA Have to Pay UBIT When Investing in a LP or LLC?
    • Financial Advisor/CPA Overview
      • Calculating, Filing and Paying UBIT
      • UBIT at the State Level
      • UBIT and Multiple IRAs
  • 990-T Filing Solutions
  • About Us
  • Testimonials
  • Resources
  • Contact Us

Isn't UBIT in IRAs a Double Taxation?

Home UBIT Information Isn’t UBIT a Double Taxation?

Isn’t UBIT a Double Taxation?

When first confronted with the idea Unrelated Business Income Tax may be owed on IRA investments, most people are confused. One of the primary benefits of IRAs is the tax-free or tax-deferred savings, so when confronted with UBIT many ask, “why do I have to pay this tax?” and “isn’t it a double taxation?”

Taxation is only a small piece of the puzzle and should not deter investors from pursuing worthwhile investment opportunities when it is considered and accounted for correctly.

Did You Know Almost All Corporate Investments You Make Have a Form of Double Taxation?

When you invest in a publicly-traded stock you are paying something very similar to Unrelated Business Income Tax. Most investors are simply unaware that these traditional investments are taxed as well.

Almost all publicly-traded stocks are incorporated into what is known as a C-Corporation. This means that the earnings of the stock are taxed at the corporate level before net profits are calculated and then distributed to its investors (thus affecting the return on those earnings).

Most UBIT triggered investments are into what are known as “flow-through” entities such as Limited Partnerships (LPs) or Limited Liability Companies (LLCs). LPs and LLCs do not pay tax at the corporate level but rather the taxable income “flows through” the LLC/LP to the individual investors.

One of the reasons UBIT was instituted was to level the playing field between tax-exempt entities (including IRAs) that invest in or operate flow-through entities and those that are subject to the corporate tax of C-Corporations. Before UBIT was implemented by the federal government, income was able to “flow through” LLCs/LPs directly into tax-exempt entities without taxation. This provided an unfair advantage over their corporate-tax-paying counterparts, and thus UBIT was enacted.

As it relates to real estate IRA investments, UBIT is most commonly applied when debt-financing is utilized and only to the portion of the real estate that has been debt-financed. For more information about UBIT in the context of real estate IRA investments, please visit the Real Estate section of our website.

When Does a UBIT Taxable Investment in an IRA Make Sense? One Piece of a Large Puzzle

Taxation and UBIT is a small piece of the very large puzzle called retirement planning. While it is important to consider any taxation on investments, it is also important to keep that in perspective of the potential gains that can be achieved by the investment opportunity.

Increased access to opportunities can offer the potential for higher rates of return, and more avenues, which are beneficial even after the taxation is considered. Real estate and entity investing are two areas that have the potential to provide profitable returns for investors, even when UBIT is factored.

  • What Is UBIT?
  • When Does UBIT Occur?
  • Why Do I Have to File in an IRA?
  • Why Should You be Glad to File?
  • Understanding the Process
  • Isn’t UBIT a Double Taxation?
  • Turning a Net Operating Loss into a Gain
  • What Tax Schedule to Follow?
  • FAQs

UBIT Professional LLC specializes in Unrelated Business Income Tax and Form 990-T preparation. UBIT Professional LLC is an affiliate of Equity Trust Company, a passive custodian specializing in the custody of alternative investment IRAs. Any information communicated by UBIT Professional LLC or Equity Trust Company should not be construed as tax, legal or investment advice. Equity Trust Company, UBIT Professional LLC, and all their affiliates, representatives and officers do not provide investment, legal or tax advice. Whenever making a financial decision, please consult with your tax attorney, financial or accounting professional.

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