IRA UBIT with Comm Real Estate

[Art Webb]

If I buy multi family comm real estate via a RE LLC company with my Roth IRA does the rent income become UBIT taxable ? If the property is paid in cash and later a mortgage is secured does it impact the UBIT question above ? Thank you for your feedback !

[Brett Synicky]

Quote from @Art Webb:

If I buy multi family comm real estate via a RE LLC company with my Roth IRA does the rent income become UBIT taxable ? If the property is paid in cash and later a mortgage is secured does it impact the UBIT question above ? Thank you for your feedback !

It's true that the IRA will incur UDFI/UBIT on the income derived from the same % leveraged. What's also true is that you can deduct expenses and even depreciation on this same % and subtract the first $1000 before calculating the UBIT. It's true it does scale up to 37% but not until around $12k of income after those deductions. Generally in the first year or more you'll have enough of those to not really incur any UBIT on especially when you factor in cost seg. Don't let UDFI on leveraged real estate scare you away from investing in your IRA, it can still make you a lot of retirement money.

Even better, get some self employment activity and sponsor a solo 401k then no UBIT on leveraged real estate!