Tax paid on UBTI in traditional IRA account

[njggoma]

I was forced to pay tax on UBTI in traditional IRA account.   How do I track the UBTI amount so that I don't get taxed again in the future when it's time to withdraw?

[dmertz]

The UBTI had to be paid by the IRA using funds within your IRA, not paid by you personally.  The payment from the IRA simply reduces the balance in your IRA, therefore reducing the amount on which taxes will be paid in the future.

If you paid the UBTI personally (which would generally be improper), that would have to be considered to be a regular contribution to your IRA for the year in which the payment was made, subject to the ordinary limitations on IRA contributions.

[njggoma]

The tax was paid out of my IRA account.   My question was, if I paid $10K in tax for $40K UBTI, I need to document that $40K is taxed money and I shouldn't have to pay tax on that much of money when it's time to withdraw in the future.   Is that not right?

[dmertz]

It doesn't work that way.  What you paid in UBIT does not add to your basis in nondeductible traditional IRA contributions or any way change how future IRA distributions will be taxed.  UBIT is an extra tax.

Even if the investment had been held outside of an IRA, paying UBIT would not increase your basis in the investment.

[njggoma]

Thank you for the information.  I feel like it's being double taxed then...  I need to stay away from PTPs in my investment which I got into it without fully understanding.... 

[fcumminger]

Since UBTI is an "extra tax", and the amount was paid from my IRA account from my brokerage firm, (in 2024), for tax year 2023 .... where do I input that tax ... as paid, in the current year ... for the previous year's tax return?

I think that I should be able to report it as taxes additionally/already paid.

Thank you,

[email address removed]

[dmertz]

Nothing about UBTI from an investment in your IRA is reportable on your personal tax return.

[fcumminger]

Still not sure if I "get it".  If this is a so-called "extra tax", why can't I count it as an amount paid toward my tax due in 2024?  Yes, it was an amount taken from my IRA account, BUT it was still money taken from me, (by my brokerage firm), and paid to the IRS.   

[dmertz]

"it was still money taken from me"

No, it was a tax paid by your IRA, reducing the balance in your IRA, not paid by you.  Your IRA is not you, it's a separate entity, even though it's owned by you.  Because you are not the one paying the tax, you don't get any credit on your personal tax return.  The payment of the tax is simply an expense of the IRA that reduces the balance in the IRA.

An IRA is a tax-exempt trust.  However, despite normally being tax-exempt, tax-exempt trusts are subject to taxation on income that comes from unrelated business activity and the trust is the entity that owes and pays the tax.  You do not personally pay the tax and are not personally responsible for paying this tax (except, perhaps, if you've taken distributions from the IRA such that the amount remaining in the IRA is insufficient to pay the tax).