LLC whose only member is my SDIRA buying a property Subject-to - triggering UBIT

[Bob Willis]

Hey All,

I have reached to my accountant about this but thought I would ask  here to see if anyone has done something similar.

An LLC of which I am the manager, and my SDIRA is the only member, is in the process of acquiring a property subject-to. Does the underlying mortgage debt, which I will be paying in an ongoing manner, qualify as a non-recourse loan and thus trigger UBIT? Does this make sense?

Thanks,
Bob

[Brett Synicky]

Yes the leveraged portion of the real estate will trigger UDFI which will cause UBIT.  UBIT scales up to 37% so it can be a hefty tax depending on the numbers.  

Easy math is this:  $100k home.  50% down.  50% financed.  So 50% of the income generated would get hit with UBIT.  So if you made 10k then $5k of it would get taxed.  After expenses are deducted.  

FYI - if you qualify for a Solo 401k (self employed and no employees over 500 hours annually) then you can avoid this tax on leveraged real estate.