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Calculating UBIT on a Real Estate Investment

When you consider the extraordinary potential tax savings you can enjoy by investing in real estate through a self-directed IRA and the recent volatility we’ve seen in the stock market, it’s not hard to see why so many investors have been flocking to alternative asset investments like real estate. However, self-directed investors should be aware of a few important matters before jumping head first into owning property in an IRA.

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Chief among these considerations is unrelated business income tax (“UBIT”). Specifically, one must think about how UBIT relates to real estate investments and how to estimate the potential impact of UBIT to make an informed decision about IRA real estate investments.

How Is UBIT Generated with a Real Estate Investment?

For real estate investments, UBIT is a tax on income earned from IRA real estate that is financed through a mortgage. The amount of income subject to this tax (unrelated debt-financed income, or UDFI) is that which is directly attributable to the debt leverage. For example, if an IRA real estate investment is 50% owned and 50% financed, 50% of that investment’s earnings will be subject to UBIT in accordance with the debt percentage.

How Can I Calculate UBIT?

There are other factors to account for in calculating the debt percentage, but don’t worry! New Direction Trust Company is proud to introduce our new UBIT Calculator to help you determine how UBIT might impact your current or prospective real estate investment. If you are interested in doing the calculations yourself, we’ve included detailed steps on how to do that, too.

UBIT doesn’t have to be complicated and it doesn’t have to deter you from making lucrative real estate investments. In many cases, UBIT proves to be a simple cost of doing business that does not jeopardize the abundant, tax-advantaged returns that a real estate IRA has the potential to generate.

Explore the UBIT Calculator to learn more about UBIT and how it may impact your real estate investments. For any other questions or concerns related to your self-directed accounts, please feel free to give us a call at 720-927-2508 or send us a message through your client portal at

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