What is UBIT? What are UBTI and UDFI?

Unrelated business income tax (“UBIT”) is an income tax levied on tax-exempt entities that engage in an active business that is not related to the entities tax exempt purpose. Unrelated business taxable income (“UBTI”) is income that is subject to UBIT. Unrelated debt-financed income (“UDFI”) is a form of UBTI that is the result of a tax exempt entity using borrowed funds to finance an investment. Retirement plans, as tax exempt entities, are subject to UBIT. An important distinction between IRAs and Qualified Plans (401k plans and Defined Benefit Plans), is that Qualified Plans do not have UDFI when investing in leveraged real-estate transactions. Learn more about UBIT, UBTI, and UDFI.