SDIRA and figuring UBIT, expenses, depriciation, etc...

[Daniel Dietz]

Hello,

I am in the process of setting up a SDIRA to purchase my first rental property. I am still trying to decide whether to buy it outright with the SDIRA funds or leverage it by borrowing about 50%.

As I have been reading up on the UBIT, I think I understand it, but not completely. I will be talking to both the SDIRA Custodian and my accountant both in the next day or two, but thought I would get some feedback here too.

My financial projections are as follows; 15,400 income, 5450 Expenses, 2096 of Interest (at 50% leverage), and 3548 of Depreciation for a 'Taxable Income' of 4305.

I am 'assuming' this means the UBIT would apply to 50% of of the Income - 50% of the Expenses - 50% of the Depreciation = 3201. Then deduct the Interest of 2096 for a Taxable Income of 1105 ?

My questions are;

1) Is Depreciation indeed deducted from the 'Leveraged' side before the UBIT is figured?

2) Is Depreciation NOT figured in on the non-leveraged side since there is no yearly 'taxable event'?

3) The Interest would be figured in full on the leveraged side since it does not apply to the non-leveraged side at all?

4) Where does the UBIT 'flow though' to on a personal tax basis?

Thanks, Dan Dietz