FEATURED
UBTI and Mortgage Debt Funds By Edward Brown, Pacific Private Money
A
Most forms of passive income, such as dividends, interest income, and capital gains from the sale of capital assets, are not treated as UBTI. Many investors use their IRAs to invest in Mortgage Debt Funds [MDF]. MDF
ccording to Investopedia, Unre-
empt entities from engaging in busi-
lend money similar to a bank where
lated Business Taxable Income
nesses that are unrelated to their
they take a deed of trust as collateral
primary purposes.
for the loans they make to borrowers.
[UBTI] is income regularly generated by a tax-exempt entity by means of
Typically, income derived from MDF
taxable activities. This income is not
UBTI greater than $1,000 is subject to
are not subject to UBTI even though the
related to the main function of the
taxation. For 2019, the highest tax rate
income derived at the MDF level is not
entity and prevents or limits tax-ex-
was 37%.
passive in and by itself. The IRA inves-
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