Self-directed IRAs generally receive tax-advantaged treatment, but certain types of income may be subject to additional taxes.

Unrelated Business Income Tax (UBIT): A tax that may apply when an IRA earns income from an active trade or business, such as through certain partnerships or LLCs. UBIT generally becomes a filing consideration when the IRA has $1,000 or more in gross unrelated business income.

Unrelated Debt-Financed Income (UDFI): Income generated from assets purchased or held using borrowed funds. For example, if an IRA purchases real estate using financing, a portion of the property's income or gain may be subject to UBIT under the debt-financed income rules.

Tax Filing Requirements: When applicable, IRS Form 990-T is used to report unrelated business taxable income. The IRA's custodian or trustee is generally responsible for filing the return, although the account owner may need to coordinate the preparation of the necessary tax information and forms.

Because these rules can be complex, consult a qualified tax professional familiar with self-directed IRAs before entering into transactions that may generate UBIT or UDFI.