You may be required to pay UBTI (Unrelated Business Taxable Income) or UFDI (Unrelated Debt-Financed Income) taxes if you use your IRA to invest or cover expenses for certain types of businesses or business activities.
UBTI taxes may apply to you if you have investments in an LP or an LLC. It also may apply if your investments within your tax-advantaged account contain debt financing and have net income over $1000 or you wish to file for a net operating loss (NOL).
For more information on the types of investments that may “trigger” a UBIT payment you can consult the IRS’s guide to Unrelated Business Income.
You may also reach out to Forge Trust if you have any questions. However, we cannot advise you on how to manage your accounts.
UDFI taxes are a subcategory of UBIT and are triggered when an IRA acquires debt as part of a real estate purchase transaction.
Both UBIT and UFDI triggers are discussed in IRS Publication 598.