UBTI - Do these provisions apply?

[Kerry M.]

After repairs, we plan to cash-out refi, repay the 401(K) and rent also. If UBTI on Debt-financed property applies, does it stop when we repay the loan? Or does it start when we've afterwards collected 1,000 in rent or profits?

This may be a net loss but still worthwhile by providing lower cost student housing for my sons.

My future property will be improved by volunteer laborers (my sons), for the benefit of themselves and with the intent of providing college housing for themselves. It is bought cash by withdrawing from a general loan from a 401(K) plan. Pulling out money from tax-sheltered funds for documented college expenses is exempt, I think.

The question is not would an investor do this deal, but can I, the mom of a large family with older teenage children?

[Jon Holdman]

Unless you elect special tax treatment for an LLC, its a pass through entity for taxes. So, it would have no effect.

UBIT applies ONLY to tax-exempt "trusts". The example used in the IRS docs is a university (a tax exempt entity) having a bookstore. Income from the bookstore is subject to UBIT. Its intended to level the playing field so the university bookstore doesn't have a advantage over an regular book store.

If you aren't using an IRA to buy stuff, forget about UBIT.

However, if you are buying rentals, especially in a complex situation like this, you need a CPA. Not H&R block or TurboTax. A real, knowledgeable CPA.