Unrelated Business Income Tax - The hidden snake that could bite

Posted by Andy
Considering buying a rental property with your IRA funds? Better think twice before you create a taxation headache. Just because you own an investment in your IRA (a nontaxable account) doesn't mean you will always escape taxation. If it is a business activity then it is considered unfair for you to compete with those who have to pay taxes on their business income. To level the playing field, your business profits are subject to UBIT (Unrelated Business Income Tax), a tax originally targeted an nonprofits who were operating outside of their exempt purposes. While rental properties are specifically exempted from UBIT, you could still face UDFI if you finance part of the purchase price of the rental property with debt.

See this article about how the IRS reaches further to tax the untaxable.
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