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Tax Law (Questions About Taxes)/Self-Directed IRA & 990-T tax return


I set up a self-directed traditional IRA a few years ago using existing IRA funds for the down payment and borrowed the remainder from a bank specializing in these types of real estate mortgages. The custodian is telling me that because the income from the property rents exceed the expenses by more than $1,000, I must file a 990-T form with the IRS. I don't understand why the IRS would require such a filing since the IRA is a non-taxable entity at this point.  Furthermore, while generally I do my own tax returns, this matter of the 990-T appears to be fairly complicated.  Can you help me to understand this matter and should I get professional help to file this?  The rent annual income on the property exceeded expenses by less than $5000.  Thank you

I would love to commiserate with you over the abuse and mistreatment that you are now experiencing. . . but, I'll just explain the facts and apologize for whoever put you into this promising that your retirement plan would grow tax free. You might want to look through the actual written documentation and see if a promise was made in writing about your investment growing without tax.

Here is the reality. The IRS never intended for anyone to be successful at retirement planning, they only wanted you to struggle at it.

the 990-T exists for what is UBTI (unrelated business taxable income).

UBTI doesn't just affect retirement accounts it also happens to charities. A charity can get contributions and not pay tax on them, but it cannot receive income for services or products and get the same tax free status. If a charity runs a bingo parlor, that is all business income and they pay taxes on it like every other business. If it runs a bookstore or a used clothing shop, or it sells candles, all of that income is UBTI, unrelated business income. All of this because the IRS doesn't want anything commercial to happen without taxes being collected.

Your retirement account is "tax deferred" on investments in a very limited list of areas. Debt financed real estate, is not in that list, therefore you have unrelated income that is from business endeavor and is taxable.

With that understanding I think you can read the instructions for the 990-T form and it should fill in most of the details.

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Richard Fritzler


Specializing in Business and Corporate taxation. Comparing the advantages and requirements of different business entities, such as Sub-S Corporations, LLC`s, Partnerships (Both Limited and General), Doing Business as a Sole Proprietor, or Using a C-Corporation. Issues regarding K-1 distributions, 1040, schedule C, 1120, 1120s. Are you considering domiciling a Corporation in a low tax state? I can review the benefits and misinformation that exists.


I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

National Small Business Owners Association.
Contributing author to "The Corporate Standard Newsletter".

Contributing author to "The Corporate Standard Newsletter".

I have been in the business of assisting business owners in reducing their taxes and liability since 1986.

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