Trying to better understand the cost on UBIT (Unrelated Business Income Tax)

[Gregg Truex]

I am purchasing a Short term rental and would like to better understand the potential tax costs of having a self directed IRA vs a self directed 401K. I understand that the 401K is not subject to UBIT but I don't know in a Self Directed IRA how those costs are detailed and calcutlated.

Does the cash flow from the short term rental get taxed or does when we sell the asset do the capital gains get the UBIT tax.

Is there someone that could help me with this? Thank you. 

[Dmitriy Fomichenko]

@Gregg Truex,

Your understanding that 401k is not subject to UBIT is incorrect. 401k IS subject to UBIT on business income. Solo 401k however is exempt from UBIT on UDFI (income from leveraged investment property).

There are no capital gain taxes on the sale of an asset inside of an IRA or 401k. These are tax-deferred vehicles, however UBIT would apply on leveraged portion of a property in an IRA (again, 401k would be exempt).

Passive income inside of either IRA or 401k would be sheltered from taxes, business income inside of both IRA and 401k would be subject to UBIT.