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The rule of thumb I've heard thrown around is that the income is not UBTI if the real estate is owned outright, but if it is financed with debt, then it is. Similarly, if the IRA invests in an investment partnership that uses any debt or leverage, the gains attributable to the leverage are UBTI.

If the IRA invests in an investment partnership that uses debt or leverage, I believe the IRA ceases to be an IRA. Using debt within an IRA is a prohibited transaction.

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