Form 990-T for IRAs: UBTI, UDFI and Real Estate K-1s (2026)

The filing trigger: $1,000 of gross income, not profit

Most readers with $250,000 or more in real estate partnerships, syndications and funds inside a retirement account never see a Form 990-T, because most of what they hold does not produce UBTI. The ones who do see it are usually surprised by the order of events: the K-1 arrives in March or April, shows leverage or an operating business, and the account's own return is due on April 15, the same day as theirs. The rules sit in the Instructions for Form 990-T (2025) and in 26 U.S.C. 408(e)(1), which says that an IRA, although exempt from tax, is “subject to the taxes imposed by section 511.”

The K-1 is where the information comes from. The Partner's Instructions for Schedule K-1 (Form 1065) say that box 20, code V is where the partnership “will report any information you need to figure unrelated business taxable income” for a partner that is tax-exempt, and that the partner “is required to notify the partnership of its tax-exempt status.” If the sponsor was never told the partner is an IRA, code V may be blank (our reading). Our guide to K-1 boxes covers the other codes, and which vehicles send a K-1 at all is the first filter: a REIT, BDC or interval fund sends a 1099-DIV.

What it costs: trust rates and one $1,000 deduction

Section 512(b)(12) allows “a specific deduction of $1,000,” once, however many businesses the account has. The Form 990-T instructions say that trusts exempt under section 501(a) “are taxed at trust rates.” For tax years beginning in 2026 those rates are in Rev. Proc. 2025-32, Table 5, which keeps the four trust rates of 10%, 24%, 35% and 37% after the 2025 law made the tax tables permanent.

What that means in dollars, by UBTI before the $1,000 deduction (our arithmetic, 2026 rates):

Two limits on that table. It is income tax at ordinary trust rates; the instructions add that a trust eligible for the rates on net capital gains and qualified dividends completes Schedule D (Form 1041) instead, so part of a sale gain may be taxed lower than shown. It is the tax on Form 990-T, Part II, line 2, and ignores state tax and anything else a preparer may add. The tax is the account's liability, not yours, and should be paid from the account (our reading).

A worked UDFI example: a deal bought with 50% debt (our arithmetic)

Section 514 pulls income that is normally excluded, such as rent and gain, back into UBTI to the extent a property was bought with borrowed money. The formula in 514(a)(1) is the property's average acquisition indebtedness over its average adjusted basis, “but not in excess of 100 percent,” applied to the gross income. Section 514(a)(2) applies the same percentage to the deductions directly connected with the property, and 514(a)(3) allows depreciation only on a straight-line basis. Publication 598 gives the model: $10,000 of rent, average debt $50,000, average basis $100,000, a 50% ratio and $5,000 of unrelated debt-financed income.

The mechanics from the Form 990-T instructions: average debt is the principal outstanding on the first day of each month, averaged over the months the property was held; average adjusted basis is the average of the basis on the first and last days of the year, reduced by depreciation. Here is a hypothetical deal run through them. These are our assumptions, not a real offering.

Four things come out of it.

• “50% leveraged” is only the starting ratio. The debt never changes in an interest-only loan, but depreciation lowers the basis every year, so the taxed share climbs from 50.7% to 57.5% in five years. With a 30-year 6% amortizing loan the ratio starts at 50.5% and reaches 54.0% in year 5, because the principal paydown offsets part of the depreciation (our arithmetic, balances taken on the first day of each month).
• The $1,000 deduction matters at small scale and disappears at large scale. One such interest costs $177 in year 1. Four identical interests in one IRA produce $11,070 of UBTI and $1,955 of tax in year 1, because the deduction is taken once and the 24% bracket starts at $3,300.
• The sale year is where the money is. Suppose the property sells at the end of year 5 for $12,000,000. The gain over the $8,545,455 adjusted basis is $3,454,545, the IRA's 5% share is $172,727, and Publication 598 says the percentage for a sale is “the highest acquisition indebtedness with respect to the property during the 12-month period preceding the date of disposition,” in relation to average adjusted basis: $5,000,000 over $8,690,909, or 57.53%. That puts $99,372 into UBTI and, at ordinary trust rates, about $34,329 of tax, an upper bound if part of the gain qualifies for capital gain rates. Paying the loan off the week before closing does not help: section 514(b)(1) counts debt at any time in the 12 months before the sale.
• Losses do not travel. Section 512(a)(6) computes UBTI separately for each unrelated trade or business, so a K-1 that shows an operating loss cannot offset debt-financed income from another K-1 (our reading; the 2025 instructions refer to Treas. Reg. 1.512(a)-6 for what counts as a separate business). Passive-activity limits also apply to a trust, and the instructions say portfolio-type unrelated debt-financed income “may not be offset by PALs from an unrelated trade or business.”

A debt-financed fund inside a partnership reaches the IRA through section 512(c)(1), which says the partner includes “its share (whether or not distributed) of the gross income of the partnership from such unrelated trade or business.” The percentage is worked out at the property level, so ask the sponsor for the debt-to-basis figure behind code V (our reading). Margin works the same way: the instructions say “Securities purchased on margin are considered debt-financed property if the liability incurred in purchasing them remains outstanding.”

Section 514(c)(9): what a Solo 401(k) escapes and what it does not

The exception reads: acquisition indebtedness “does not, for purposes of this section, include indebtedness incurred by a qualified organization in acquiring or improving any real property.” A “qualified organization” includes “any trust which constitutes a qualified trust under section 401.” An IRA is a section 408 account and is not on the list, which is why a Solo 401(k) can borrow against real estate where an IRA cannot without this tax, and why the self-directed IRA rules tell IRA owners to budget for it. But the exception has six exits, in clause (B), and the last one matters most to anyone buying into a syndication.

Three consequences, in our reading. First, a Solo 401(k) buying a rental directly with a non-recourse mortgage from an unrelated bank can fit the exception; the same 401(k) buying a limited partnership interest in a leveraged apartment deal fits only if clause (vi) is met, and clause (vi)(I) says an organization with any UBTI of its own is not treated as a qualified organization for the all-partners test. Our Solo 401(k) vs Roth IRA comparison flags the same fractions-rule caveat. Second, section 514(c)(9)(A) adds that “an interest in a mortgage shall in no event be treated as real property,” so a fund that borrows to make loans gets no help from the exception in either account. Third, the exception removes debt from the definition only; operating-business income still reaches the 401(k) under section 512, which is the next table.

Which holdings create UBTI in an IRA or a Solo 401(k)

This is our reading of 26 U.S.C. 512 and 514, Treas. Reg. 1.512(b)-1(c)(5) and the filings in the census below, not a ruling on any specific investment.

The two MLP filings in that row are not in our census; they were found in the same search. Delek Logistics Partners' August 12, 2026 prospectus supplement says that “virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income.” Kimbell Royalty Partners' July 10, 2026 prospectus supplement says that “A tax-exempt investor will not have unrelated business taxable income attributable to its ownership of common units” unless the units are debt-financed. Same K-1 form, opposite answers, because one earns royalties (excluded by 512(b)(2)) and the other runs a logistics business.

What 125 vehicles say about UBTI in their 2026 SEC filings

The bonus table. We took the 125 vehicles in our K-1 vs 1099-DIV census and searched SEC full text on October 20, 2026 for four phrases (unrelated business taxable income, unrelated business income, UBTI and unrelated business) in every filing made from January 1, 2026. A hit means the filing discusses the subject, usually in a tax section or an ERISA-plan checklist; it does not mean the vehicle will produce UBTI, and a miss means only that no 2026 filing in the index used the phrase (our count).

The K-1 vehicles. Of the 19 K-1 vehicles with a mention, nine say in some form that leverage can or is expected to create UBTI: Blackstone Infrastructure Strategies (BXINFRA), VistaOne, Stonepeak-Plus Infrastructure Fund, TPG Private Equity Opportunities, Apollo Asset Backed Credit Co (Series II), Apollo Infrastructure Co (Series II), TriLinc Global Impact Fund, BridgeWell Secured Income LP and PIMCO Asset-Based Lending Co (Series II). BXINFRA's 10-K says tax-exempt investors “should note that the use of leverage by us may create” UBTI; BridgeWell's June 5, 2026 filing says “it is likely that the Partnership investments will be acquired with funds from loans” and describes the share of net income equal to the ratio of that debt to basis as UBTI, the same arithmetic as the example above. Eight describe corporate or feeder structures meant to avoid UBTI (BXPE, Carlyle Private Equity Partners, Warburg Pincus Access Fund, KKR's K-PEC and K-INFRA, EQT Private Equity Co and EQT Infrastructure Co, and ISQ Open Infrastructure Co); K-PEC says it “anticipates that any operating assets held by the Company will be held through entities that are treated as corporations.” Two others mention the subject without a position (Spark Fund One's ERISA checklist and Hartley Opportunity Fund's section 512 summary). Seven K-1 vehicles had no 2026 filing in the index using the phrases: Caltier Fund I, Norhart Invest, Gratus Capital Properties Fund III, PRC Equity Fund I, FISYN Fund II, CNL Strategic Capital and Belpointe PREP. A K-1 from one of them is not a UBTI-free K-1; it means the question is not answered in the document.

The REIT, BDC and interval-fund vehicles. These send a 1099, and their filings are mostly the reassuring kind. We read the UBTI text of the filing that matched for each of the 18 non-traded REITs with a mention (our reading of the text, by keyword):

The pattern is consistent: 15 of 18 give the standard sentence, which in Starwood's filing reads “dividend income from us generally will not be unrelated business taxable income, UBTI, to a tax-exempt holder,” provided the shares are not debt-financed property. The exceptions are the borrowed-share case (17 of 18), the pension-held REIT test (15), which concerns only a section 401(a) trust holding more than 10% of the REIT, so it does not reach an IRA and matters to a Solo 401(k) only at that size (our reading), and excess inclusion income (6), which Cantor Fitzgerald Income Trust and FS Credit Real Estate Income Trust, two REITs with mortgage exposure, both describe as taxable to a tax-exempt holder as UBTI. Credit-focused REITs are where to read that paragraph. For a BDC taxed as a RIC, the typical text in the census, here Oaktree Strategic Credit Fund's, says that “a BDC is a corporation for U.S. federal income tax purposes and its business activities generally will not be attributed to its shareholders.”

What a reader can do with this

• Before buying a K-1 vehicle in an IRA, ask four questions in writing: does the fund or the property-level entity borrow; will box 20 code V be populated; is the structure a partnership that meets the clause (B)(vi) tests if the investor is a Solo 401(k); and is a corporate blocker used. Then compare the answers with the table above.
• Estimate the debt-financed percentage yourself. Debt over basis, not debt over value. Use the sponsor's loan balance and cost basis, then run it through the worked example: one hypothetical $250,000 position costs about $177 in year 1, and the sale year is where it can reach the 24% to 37% brackets.
• Plan the paperwork before the tax. The account needs its own EIN, the custodian is the trustee that files, and the K-1 may arrive after you would like. Ask the custodian whether it prepares Form 990-T or expects you to supply a return, what it charges, and how it pays the tax from the account. File Form 8868 by April 15 if the K-1 is late, and pay an estimate then, because the extension covers filing, not payment.
• Count the businesses, not just the dollars. UBTI is computed separately per trade or business, so a loss on one K-1 does not cancel income on another.
• Do not rely on a missing code V. If your custodian never told the sponsor the account is tax-exempt, the K-1 may omit the information (our reading); ask the sponsor.
• If you are choosing between an IRA and a Solo 401(k), the exception matters only for debt on real property you own directly or through a partnership that passes clause (vi); it does not fix operating-business K-1 income or a loan fund's leverage.

This is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on October 20, 2026: Instructions for Form 990-T (2025) and Form 990-T (2025); Instructions for Form 8868; IRS Publication 598; Partner's Instructions for Schedule K-1 (Form 1065) (2025); Rev. Proc. 2025-32 (Table 5, trusts); 26 U.S.C. 408, 511, 512, 513, 514 and 1411 (Cornell Legal Information Institute); Treas. Reg. 1.512(b)-1; SEC EDGAR full-text search and the 2026 filings of the vehicles named, including the prospectuses and 10-Ks of the 18 non-traded REITs in the table, Oaktree Strategic Credit Fund, BXINFRA, VistaOne, KKR Private Equity Conglomerate, BridgeWell Secured Income LP, Delek Logistics Partners and Kimbell Royalty Partners; and our K-1 vs 1099-DIV census of 125 vehicles. Worked examples are our arithmetic on hypothetical figures. This is analysis of public documents, not investment, legal or tax advice.