I live in NJ and hold shares of a private real estate fund in my self directed IRA. I received a K-1 from the fund which shows taxable business income from PA. Since this is in an IRA and the income is not taxable, I am hoping I do not have to file a PA state return. Is this correct? I do not have any other PA income. thanks.
Unrelated business income is reported on a 990-T form.
If you hold a Limited Partnership or LLC in your IRA then any Unrelated Business Income in excess of $1,000 is taxable (even though it is in an IRA). It is not reported on your tax return but on a 990-T form. (The custodian of your IRA is required to file the form for you but you must submit the K-1 form(s) to them - ask the custodian about this).
Unrelated Business Income is reported as code "V" in box 20 on the K-1 form.
Also see pub 598.
http://www.irs.gov/publications/p598/ch01.html
Per the 990-T Instructions: https://www.irs.gov/pub/irs-pdf/i990t.pdf
"Who Must File
Trustees for the following trusts that
have $1,000 or more of unrelated trade or
business gross income:
1. Individual retirement accounts
(IRAs), including traditional IRAs"
4. Roth IRAs described under section
408A,
macuser_22 thanks for your prompt and comprehensive reply. There is no income in box 20, all the income is in box 1 ordinary business income(loss). So then there is no requirement for form 990-T? I can check with the IRA custodian on that as well. More importantly for the moment, I dont need to worry about filing a PA state return?