American IRA Discusses Understanding Self-Directed IRA Investments that Generate Unrelated Income

Share Article

A Self-Directed IRA makes it possible to hold investments that generate income exempt from federal income tax—but what about unrelated income? A recent post at American IRA explores the topic.

News Image

American IRA CEO, Jim Hitt

These tax issues can get quite complicated

Holding a Self-Directed IRA means that it is possible to hold investments that are exempt from federal income tax. As a recent post at American IRA notes, the Internal Revenue Code exempts most forms of investment income generated within a Self-Directed IRA. For example, dividends, loan interest, annuities, rental income from real estate, and gains from the sale of stocks or real estate all fall under the umbrella of tax exemption in this situation.

But there may be cases in which Self-Directed IRA holders need to pay special attention—there is a UBTI, or a tax on unrelated income, that can result when holding assets within a Self-Directed IRA. In American IRA’s recent post, it went through the types of situations that may trigger this UBTI.

For instance, UBTI would be defined as gross income regularly generated by a tax-exempt entity via a taxable activity unrelated to that entity’s main function. For instance, if a Self-Directed IRA owns a large manufacturing company, income is exempt if all activities within the company are related to manufacturing. But if the company generates additional income such as leasing some equipment to other businesses, that lease income would then generate UBTI.

Two factors potentially trigger UBTI rules—whether the activity attains the level of a trade or business, and whether that activity is regularly carried on. The article further detailed other examples of activities that the IRS could deem to rise to the level of “active business” that is regularly carried on, and therefore potentially subject to UTBI rules.

“These tax issues can get quite complicated,” said Jim Hitt, CEO of American IRA. “That is why we like to put out informational posts that help fill the information gap. Self-Directed IRA owners have a lot of homework as a result of their increased freedom, which is why it is so imperative that they work with a valid Self-Directed IRA administration firm.”

For more information on the UBTI rules and how a Self-Directed IRA investment might generate taxable unrelated income, visit the post at or call American IRA at 866-7500-IRA.

American IRA, LLC was established in 2004 by Jim Hitt, CEO in Asheville, NC.
The mission of American IRA is to provide the highest level of customer service in the self-directed retirement industry. Jim Hitt and his team have grown the company to over $400 million in assets under administration by educating the public that their Self-Directed IRA account can invest in a variety of assets such as real estate, private lending, limited liability companies, precious metals and much more.

As a Self-Directed IRA administrator, they are a neutral third party. They do not make any recommendations to any person or entity associated with investments of any type (including financial representatives, investment promoters or companies, or employees, agents or representatives associated with these firms). They are not responsible for and are not bound by any statements, representations, warranties or agreements made by any such person or entity and do not provide any recommendation on the quality profitability or reputability of any investment, individual or company. The term "they" refers to American IRA, located in Asheville and Charlotte, NC.

Share article on social media or email:

View article via:

Pdf Print

Contact Author

Jim Hitt
Follow >
American IRA, LLC
Like >
American IRA, LLC

Visit website