Does the tax-free wrapper only make sense if you never touch leverage?

The depreciation point took me three reads before it clicked. If the account already doesn't pay tax on the income, a deduction against that income is worth nothing. So the leveraged deal inside an IRA is carrying the cost of debt without the tax benefit of debt. That seems like a big deal and I never see it mentioned first.

I voted for the split. Five years running a business taught me that the pure version of any policy dies the first time a good opportunity shows up that doesn't fit it. Better to decide in advance what percentage of the account can go into something that generates a 990-T, write the number down, and stop arguing with yourself every time a sponsor sends a deck. Mine is 20 percent and I've used about half of it.

Strictly clean for me. Not because I've run the math against thatch's version and won, I probably haven't. It's that the filing is an annual obligation with a deadline attached and I'd have to hire someone every year for it. I want the account to be something I look at twice a year.

The framing in the poll skips a variable that matters more than the tax rate, which is who computes your number.

On a leveraged syndication, the UBIT calculation depends on the sponsor's debt-financed percentage, how it changes across the hold, and whether their K-1 arrives with the unrelated business taxable income figures actually filled in. I've read PPMs that say plainly that the fund may generate UBTI for tax-exempt investors and then say nothing about whether the K-1 will report it in a usable form. If it doesn't, your preparer is reconstructing it, and that's billable hours every year, not just in a good year.

So before anyone prices the tax, ask the sponsor in writing whether the K-1 will include the UBTI reporting on the relevant lines and by what date it typically goes out. A sponsor who has had tax-exempt investors before answers that in one sentence. A sponsor who hasn't will say they'll check with their accountant.

verity's answer is more defensible than she's giving it credit for. The annual compliance obligation is a real recurring cost and a real recurring failure point. The tax rate is only half of what you're buying.

A few definitions for anyone reading this cold, since the thread moves fast.

UBIT is unrelated business income tax. A retirement account is tax-exempt, and the rules stop that exemption from covering income that looks like an operating business or income earned on borrowed money. Interest from lending, rent from property the account owns outright, and gains on passive positions generally sit outside it. Income tied to borrowed money and profits from active businesses such as a flipping operation generally sit inside it. When it applies, the account files Form 990-T, the threshold where filing starts is low, and the rates follow the trust schedule and rise quickly. Confirm the current thresholds and rates with a tax professional, since these figures change.

On ember's point about depreciation, the reason it lands is that deductions reduce taxable income. An account that already owes no tax on rental income gets nothing from a deduction against it. That is a real structural difference between holding a leveraged property personally and holding one inside an IRA, and it is separate from the UBIT question.

One thing the poll options can't capture: the answer depends on how much of your total retirement balance you are moving and what the rest of it is doing. An account that holds nothing else has different tolerance for an annual filing obligation than one where the self-directed piece is a slice of something larger.

What warrant said about the K-1 is the practical test. If the sponsor cannot tell you how UBTI will be reported and when, you cannot price the decision either way.