UBIT is a hefty tax that can penalize up to 37% of your investment account on business income! There must be two hurdles that your SDIRA investment must overcome to be exempt from paying UBIT. First hurdle: Is the income passive? I know that you may have heard a sponsor or GP claim that their investment is passive, that you, as an investor, do not have to “do anything,” i.e., passive. While that may be true of your personal time, energy, or effort, UBIT does not consider you; it considers the SDIRA. Is the invested capital “doing anything”? That’s the question.

What exactly is a self-directed IRA? Self-directed IRAs (SDIRA) give owners complete control over retirement funds and investing decisions. These plans can use alternative investments, like real estate, to create diversity and build retirement wealth.