Understanding UBIT: When Nonprofit Debt-Financed Income Becomes Taxable

ARTICLE | October 15, 2024

Authored by Vasquez + Company

While nonprofits often exclude investment income from unrelated business income tax (UBIT) calculations, income from debt-financed properties typically falls under taxable unrelated business income (UBI). This article breaks down what types of debt-financed income count toward UBIT and highlights exemptions to help nonprofits manage tax obligations effectively.

Key Points:

• Debt-Financed Property Taxation: If property income is proportionally financed by debt, a matching percentage is taxable as UBI.
• Common Scenarios: Nonprofits with debt-financed real estate or investments like stocks often see UBI implications.
• Exemptions: Properties serving nonprofit purposes or used in certain excluded activities may avoid UBIT.

Navigating UBIT requirements can be challenging for nonprofits, especially with debt-financed properties. Contact us for information and help on compliance and optimal tax treatment.

Read the full article here for more insights on UBIT compliance.

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