Can I claim the taxes paid on form 990-T on my form 1040, otherwise, won't I pay tax a second time on the 990-T UBTI when I take the IRA distributions?

Forum|Forum|7 years ago
June 1, 2019
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jdedukeAuthor

Level 2

If my IRA custodian paid 990-T taxes on $25,000 of income in my IRA now, and I then receive a $40,000 IRS distribution in 2019, I should pay income tax (on my 1040) on $15,000, not $40,000. Otherwise I'm paying tax on the same $25,000 twice.

dmertz

Level 15

No, your IRA, not you, is paying UBIT on the UBTI. Yes, when the funds in your IRA are distributed to you, they will be taxable income to you, a separate taxable transaction. There is nothing you can do to offset the UBIT paid, it's the cost of having your IRA invested in investments that are subject to UBIT. The UBIT paid simply represents the equivalent of an investment loss that reduces the gain in your IRA value that resulted from the UBTI.

yanceybl

Level 2

What if a merger occurred of stock held in an IRA which results in a loss from stock purchased prior to merger? Example; stock A was purchased at $40 in IRA. Stock A dropped to $10 per share. Stock A was merged with Stock B at a .33 rate of shares (100 shares gets 33 shares of new stock). Then the custodian files a 990T which shows UBIT on the merger plus a schedule D showing capital gains. How is the $30 per share loss on Stock A accounted for? There was no capital gain. However, there was a loss on capital gain.

dmertz

Level 15

Assuming that this is a traditional IRA, the loss in value of stock A prior to the merger is an amount on which you will never pay taxes because it's an amount that will never be distributed from the IRA, the same as if there had been no merger.

jdedukeAuthor

Level 2

Thanks--sadder but wiser.

Critter

Level 15

You should be paying the taxes on the 990-T from the IRA funds and not from outside IRA sources. Doing it that way reduces the income in the IRA so you naturally don't pay taxes a second time.

jdedukeAuthor

Level 2

My question should read "won't I pay tax a second time on the same money when I pay taxes later on my IRA distributions? The same money as listed on the 990-T will be paid out to me at some point as a distribution, at which time I'll pay income tax on it. That would make the second time that I had paid taxes (once by the custodian on the 990-T now, and a second time later by me when I take the distribution, on my 1040.) Therefore, I should be able to list the taxes paid on my 1040 now since I am paying them now (by the custodian on the 990-T). Or, if not that, then I should be able to subtract the UBIT dollar amount upon which the 990-T tax was paid from the distributions when I receive them. If tax on $25,000 is paid now by the IRA custodian, then if I receive a $40,000 IRA distribution next year, I should only have to pay tax on $15,000. Otherwise I'm paying twice on the same $25,000 income."