UBTI and IRAs in Apartment Syndications: When Debt-Financed Income Is Taxed
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Rental income inside an IRA is generally not taxed in the year it is earned, but there is an exception that matters for apartment syndications: income from property bought with borrowed money can be unrelated debt-financed income, which the IRS treats as unrelated business taxable income (UBTI). The IRA, not you personally, may then owe tax and file Form 990-T. This is general information, and a tax adviser should look at your account.
What is UBTI and why does debt matter?
Retirement accounts are generally exempt from tax on most passive income. The exception is income from a business unrelated to the account's purpose and, for real estate, income from property that was acquired with debt. The rules are in 26 U.S.C. 514 and the filing is described by the IRS in About Form 990-T. The more of the property that was financed, the larger the share of income that counts. Our guide on self-directed IRA syndication investing covers the other IRA rules.
What does a simple example look like? (Illustration only)
Say an IRA invests $100,000 in a deal that buys a $10,000,000 property with a $6,000,000 loan. Roughly 60% of the property is debt-financed. If the IRA's share of net rental income for the year were $5,000, about $3,000 could count as debt-financed income. This is a simplified illustration of the idea, not a calculation you can use. The real figure uses an average acquisition debt each year and allows deductions, depreciation among them, so it may be much lower or even zero, and it changes each year.
Does it apply to a Roth IRA or a solo 401(k)?
Plan rules differ. IRAs and many other tax-exempt accounts can be affected. Some plans have their own rules on borrowed money. Ask your custodian about its own treatment. The IRA's custodian signs the subscription, and the deal also has to be allowed by the account's rules.
Does a sale create UBTI?
A sale of property that was debt-financed within the prior 12 months can produce debt-financed gain as well. The rules are specific, so ask your tax adviser rather than assume.
What should a sponsor do?
- Say whether UBTI is expected in the offering materials, without promising any tax result.
- Deliver K-1s on time and show the information a tax-exempt investor needs, such as the unrelated business income lines. See K-1 timing and Schedule K-3.
- Tell IRA investors to talk to their own tax adviser.
DoorRaise delivers K-1s that the deal's accountant prepares and does not give tax advice. DoorRaise verifies every investor is accredited, including those investing through an IRA.
FAQ
Is UBTI always owed?
No. It depends on the debt, the income after deductions and the year.
Who files Form 990-T?
The IRA, usually through its custodian or a preparer.
Is a deal without a loan free of UBTI?
Often the debt-financed rule does not apply when there is no acquisition debt, but other rules can apply. Ask a tax adviser.
Sources
The examples are simplified illustrations, not projections or offers. This article is general information as of November 2026, not legal, tax or investment advice. Talk to your own tax adviser and attorney. Every investment can lose money. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.