For those of you who use direct investments in IRAs, IRA Services is a company you should know. They are a specialty company that will allow you to hold real estate, limited partnership shares and other direct investments in an IRA while charging VERY reasonable fees (most specialty shops I’ve talked to charge a LOT more).

With that said, before you consider putting a direct investment into an IRA, make sure you completely understand what kinds of transactions are prohibited and unrelated business taxable income (UBTI) issues.

The most common source of UBTI is leverage. For example if a limited partnership uses 50% leverage to acquire a property, when that property sells, half of the appreciation will be considered UBTI. If UBTI is over a thousand dollars, the IRA will owe taxes (at trust tax rates) and those taxes will need to be paid by the IRA. Paying the taxes with
funds outside the IRA will be considered a contribution.