990-T UBIT for SDIRA with LLC

7 Replies

My first post out here. Learnt a lot from just search and reading through. Great place to learn!. Thanks!

Here is my story:

Me : SDIRA(IraServices) --> My LLC(EIN 1)

Wife: SDIRA(IraServices) -->Wife LLC(EIN 2)

Bought a CA property to be developed in May 2013 for $400k with funds from both LLCs. 

Borrowed (non-recourse) for $350k in Aug 2014 for improvements.

Total Cost of improvements: $350k(borrowed)+$200k(LLCs) = $550k

Sold in Dec 2014 for $1.2m. 

Proceeds are in the LLC's bank accounts.

Both LLCs received 1099-S from Escrow agent. 

Now its time to file taxes and read that UBIT needs to be paid on the leveraged amount. Here are my questions

  1. 1. Which one (LLC or the SDIRA) needs to file the 990-T? I understand its the SDIRA, How do I file and pay taxes? Does each SDIRA needs its own EIN? When it comes to payment does the LLC transfer monies back to SDIRA and then instruct the custodian(IraServices) to pay?
  2. 2. How can I calculate the basis? Can I depreciate the property? How should I do that?
  3. 3. How to calculate the leveraged portion based on the short time the money was borrowed?

Appreciate if anyone can shed some light on this. 

Finally I would love to know if anyone can recommend a CA Tax CPA in Bay Area who understands SDIRA and UBIT. 

The SDIRA needs to file the 990-T.  Do NOT try to do this yourself.  

Updated almost 4 years ago

I'm swamped in work or I'd go into detail. You will pay UBIT on the debt financed portion of gain. So your basis is the amount invested including loan proceeds used to improve the property. Then we factor in the loan amount for calculating the amount re

@Sam Ricochet  

Firstly, your IRA LLC provider should be able to assist you with this matter. If not, then perhaps your choice of vendor was less than optimal.

Secondly, you will definitely need to find a CPA who can assist you with this, some of the questions you ask are complex and specific to your investment transaction. I do not have a specific recommendation in the Bay Area, but can tell you that you do not necessarily need a CPA with significant IRA experience, as the 990-T filing is common to all forms of tax-exempt & non-profit entities.

The taxpayer is the IRA, and you will need to obtain an EIN for the IRA in order to be able to file. The payment itself can be issued from the LLC account and does not need to be routed and processed through your account with IRA Services Trust Co.

Straightline depreciation on the property is applied as a deduction against the taxable income, as would be other normal expenses such as real estate taxes, insurance, etc.  All deductions are applied in the same ratio as the debt financing.

The basis calculation is the tricky part.  Very doable, of course, but where the expertise of a professional will come into play.

Keep in mind, even with the hassle and expense of the UDFI taxation, you should be reaping a higher cash-on-cash return for your IRA dollars than if you had made an all cash purchase.

Best of luck in this matter and continued success for your IRA investments!

The 990-T will be filed by your SD IRA assuming your LLC is a disregarded entity, which it most likely is. Like Brian said above, your IRA custodian should be able to help you out in terms of the basics, but you will need to talk to a tax attorney who specializes in exempt organizations.

You're always welcome to take a run at it yourself, but if you look at the instructions below, unless you're very well versed in tax law and reading IRS pubs its going to be terribly confusing.


Good luck in your future investments!

Thanks for your valuable feedback but I am specifically looking at either.

1. Filing the 990-T myself

2. Or get a recommendation from this forum on an experienced CPA who can fill this out.

I would not attempt to do it myself but I would appreciate if anyone can point me to a resource that explains the way to calculate the basis for UBIT for a real estate property. This would help me understand it so I can make better investment decisions next time by incorporating the trust rate into my P/L analysis. 

I might convert this to a solo 401k as it avoids the UBIT. 

@Sam Ricochet  

Congratulations on the profitable sale. Publication 598 discusses UBIT actually has some good working examples that should help. I would suggest using that as a learning resource for starters.

Bill Humphrey is a CPA with IRA Tax Services and they complete 990-T filings.

In case you didn't know, 1031 exchange options also exist inside the IRA.

Best of Luck!

@Loren Whitney 

Thank you. You actually answered my question and struck upon the 1031. I will research 1031 within IRA and see if that can avoid the UBIT as I am already investing in another property.

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