​Is finder fee or assignment fee would trigger a UBTI tax?

[Peter Bui]

Hello everyone,

I am just starting out with the Wholesale Real Estate process and appreciate any advise on this topic so that I have a clear understanding about the DOs and DONt in RE Investing with SDIRA.

Is finder fee or assignment fee would trigger a hefty UBTI tax for SDIRA LLC?

As a wholesaler, just simply finds great deals using a variety of marketing strategies, puts them under contract, and sells that contract to buyer for an "assignment fee" or "finder's fee". I have the understanding that it would trigger a UBTI tax after depositing the check to my LLC account and can be taxed as high as 40% and to IRA custodian this is considered an active business/inventory and is illegal???

I am sure that there are experienced wholesalers here have been doing this for long time and would like to share....Are commissioned checks being deposited under their individual names instead of LLC name and just reported as general income with the after tax profit? (Is being taxed based on the one's income tax rate bracket only?)

Does this apply to all wholesaling in SFR, apts, and notes with the assignment fee?

Appreciate your sharing thoughts in advance. Thanks!

[Peter Bui]