Can losses from one DST in my IRA offset UBTI from another DST?

The silo rule separates businesses, and the regulation puts every financed trust in the same silo

Section 512(a)(6) requires an exempt organization with more than one unrelated trade or business to compute unrelated business taxable income separately for each, and the total is the sum of those separate amounts less the specific deduction. An IRA is such an organization: section 408(e)(1) exempts the account from income tax but keeps it subject to the tax on unrelated business income, and Publication 598 lists traditional, Roth, SEP and SIMPLE IRAs among the accounts that pay it.

A DST interest enters the calculation through section 514. Rents and gains from real property are normally excluded from unrelated business income, but section 512(b)(4) pulls back in the debt-financed share of both, computed under section 514(a) as average acquisition indebtedness over average adjusted basis. Because Rev. Rul. 2004-86 treats each owner as owning an undivided interest in the property, the account's share of a financed trust is debt-financed property in its own hands.

The regulation then answers the question. Reg. section 1.512(a)-6(c)(1) says investment activities are limited to qualifying partnership interests, qualifying S corporation interests and debt-financed property within the meaning of section 514, and that they are treated collectively as a separate unrelated trade or business. Two financed DST interests, or ten, are therefore one silo, reported on a single Schedule A under the investment-activities code the Form 990-T instructions provide, and a loss from one reduces the income from another.

What stays outside the silo and what the netting cannot do

An interest in an operating business does not join. If the account holds a partnership interest that fails the regulation's 2% de minimis test and its 20% participation test, that partnership is its own silo on its own Schedule A. Section 512(a)(6)(C) says the income for any silo is not less than zero, so a loss in the investment silo cannot shelter income from the operating silo, or the reverse.

The specific deduction does not multiply. Section 512(b)(12) allows $1,000, and the Form 990-T instructions say only one specific deduction may be taken regardless of the number of unrelated businesses conducted. Nor does the $1,000 help create a loss, because section 512(a)(6)(A) computes each silo without regard to it and Publication 598 says it is not allowed in computing a net operating loss.

Accounts never net with each other. The Form 990-T instructions require an IRA trust to enter its own employer identification number and to file as its own taxpayer, so a loss in your traditional IRA cannot offset income in your Roth or in your spouse's account. And none of this reaches Form 1040: the account's deductions belong to the account. Losses on a DST you hold personally follow different rules, covered in DST passive losses and sale.

A net loss in the silo becomes a carryforward, not a refund

If the investment silo's deductions exceed its income in a year, the excess is a net operating loss for that silo. Reg. section 1.512(a)-6(h)(1) requires the NOL deduction to be determined separately for each silo, and the Form 990-T instructions say post-2017 losses carry forward without expiry but the deduction is limited to 80% of taxable income under section 172(a)(2).

In practice that means a first-year depreciation loss from a newly financed trust waits for income from the account's other financed trusts, or from the debt-financed share of gain when any of them sells. Section 514(c)(7) measures that gain fraction by the highest acquisition indebtedness in the 12 months before the sale, so a sale year is often the year the carryforward is finally used.

Worked example: two financed trusts in one account

Hypothetical, rounded figures. Your IRA holds interests in trust A, financed at 50%, and trust B, financed at 60% and in its first full year. The account's share of A's net rental income is $8,000, so $4,000 is debt-financed income. Its share of B's result is a $5,000 loss after depreciation, of which 60%, or $3,000, is a debt-financed loss. The silo nets to $1,000; after the $1,000 specific deduction the account's taxable income is zero and no tax is due.

Change B's loss to $10,000. The debt-financed share is $6,000, the silo nets to a $2,000 loss, the specific deduction is not used, and $2,000 carries forward to the next year's investment silo. Had B been held in a different IRA, A's account would have paid tax on $3,000 at the trust rates in the Form 990-T instructions and B's account would have carried its own loss with nothing to absorb it. Compare both layouts with your CPA before deciding where each trust sits.

What this means for how a retirement account picks trusts

The netting makes a portfolio of financed trusts in one account less painful than the same trusts scattered across accounts, but it does not make leverage free: in most years rental income exceeds depreciation and the silo shows taxable income. An all-cash trust has no acquisition indebtedness, produces nothing in the silo; debt-free DSTs explains when one fits.

If the account will hold leverage anyway, keep every financed interest in the same IRA, and keep cash there to pay the Form 990-T bill. Can I buy a DST in my IRA or 401k plan covers the purchase rules and buying a DST inside a self-directed IRA or solo 401(k) covers the filing mechanics. Each trust remains a private placement with no public market, distributions that can be cut, and a property that can sell for less than the account paid.