What is UBTI and how is it different from UBIT?
UBTI is an acronym for Unrelated Business Taxable Income. UBTI generally occurs when a plan generates income from operating a business, acquiring or improving property through debt financing, or certain partnerships from which the plan owns an interest. UBTI is income generated by a trust when engaging in business activity that is unrelated to its general purpose. Self-directed IRAs were created for long-term investing, and when it purchases an asset that produces income unrelated to the intent of the “plan,” then that income is subject to taxation – which means your IRA will be paying taxes on profits generated from your business purchase. UBTI is subject to Unrelated Business Income Tax, or UBIT. UBIT is a very steep and complicated form of taxation. Much like Federal Income Taxes, UBIT is set to a laddered schedule. However it is compressed on much tighter levels. In 2005, UBIT is taxed at the following rates: • $0 – $2,000 = 15% • $2,000 – $4,700 = 25% • $4,700 – $7,150 = 28% • $7,
UBTI is an acronym for Unrelated Business Taxable Income and occurs when a plan generates income from operating a business, acquiring or improving property through debt financing, or certain partnerships from which the plan owns an interest. It is income generated by a trust when engaging in business activity that is unrelated to its general purpose. UBTI is subject to Unrelated Business Income Tax or UBIT which can be a very complicated form of taxation. Like Federal Income Taxes, UBIT is set to a laddered schedule, however, it is compressed on much tighter levels. In 2005, UBIT is taxed at the following rates: $0 – $2,000 = 15% $2,000 – $4,700 = 25% $4,700 – $7,150 = 28% $7,150 – $9,750 = 33% Over $9,759 = 35% UBIT was implemented to keep the plans that open businesses and the typical small business owners even. If a plan or self-directed IRA was able to purchase a business and did not have to pay any taxes, it would be able to deliver an identical product at a discount. UBIT erases
