“If I do all my house flips in my Roth IRA, I never pay tax on them… right?”
Flipping houses in a Roth IRA sounds like the perfect plan: average $35,000 a flip, pay no tax, forever. In our September live Q&A, guest John Bowens of Equity Trust Company explained why the Roth doesn’t make every flip tax-free, and Laura Dohanes, CPA, showed how the same question plays out on your personal return.
Quick answer: Not if your IRA starts acting like a business. Profit from a trade or business that the IRA regularly carries on is unrelated business taxable income (UBTI), and the tax on it (UBIT) is paid inside the IRA at trust tax rates, which reach 37% once its taxable income tops about $16,000 (2026), Roth or not. There’s no bright-line number, but John’s rule of thumb is that more than two flips in a one-to-two-year period makes UBIT likely. Many investors switch to private lending, whose interest is generally exempt; full-time flippers may be better off with a ROBS.
The tax is unrelated business income tax, or UBIT. It sits in the same part of the tax code (Sections 511–514) as the UDFI tax on leveraged real estate. Like UDFI, it applies to every kind of IRA (traditional or Roth), and it’s paid by the IRA, reported on Form 990-T.
UBIT kicks in when your IRA is effectively running a business or, more precisely, a trade or business that’s regularly carried on. Flipping houses in your IRA might not be a prohibited transaction at all, but it can still be taxable, at trust tax rates that reach 37% above about $16,000 of taxable income.
Everyone wants the exact number, and there isn’t one in the code. John’s rule of thumb: more than two flips in a one-to-two-year period creates a high likelihood of UBIT. The answer depends on the facts: how often you buy and sell, how much work goes into each property, and whether it looks like an ongoing business.
A common pattern is to do an occasional flip, then shift the IRA into private money lending secured by real estate. Interest income is generally excluded from UBIT under Section 512, so the IRA keeps earning without the business-income problem. Design the portfolio around the tax rules instead of the other way around.
If you want to do 10 flips a year because you’re good at it and that’s how you want to build retirement wealth, that’s the case for a ROBS (Rollover as Business Start-up), set up with professional help. With a ROBS, you’re allowed to put on the work boots and go to the property. You don’t have to stay hands-off the way you do with an IRA. The trade-off: the business is a C corporation that pays its own corporate tax, and the IRS watches ROBS arrangements closely.
Laura connected it to what she sees outside retirement accounts: flip one or two properties and you may get capital-gain treatment, but at some point flipping becomes a trade or business, and the profit is ordinary income. The IRS doesn’t publish a number there either. She’s had clients insist 16 properties weren’t a business, which is very hard to prove. With the flip market heating up again, the question matters on both sides: in your IRA and on your own return.
Official IRS reference: IRS — Publication 598, Tax on Unrelated Business Income of Exempt Organizations
They can. If flipping becomes a regularly carried-on business inside the IRA, the profit is subject to UBIT even in a Roth.
Unrelated business income tax: the tax on income (UBTI) an IRA earns from a trade or business it regularly carries on, reported on Form 990-T.
There’s no fixed number. As a rule of thumb, more than two flips in a one-to-two-year period makes UBIT likely.
Generally no. Interest income is excluded from UBIT, though debt-financed situations can differ.
These answers come from our monthly open Q&A. Only newsletter members get the invite (real tax strategy for business owners, twice a week, no fluff).
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Guest: John Bowens, Director & Head of Education and Investor Success at Equity Trust Company, appeared as a guest. Custodians, including Equity Trust Company, do not provide tax, legal or investment advice.
Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Every situation is different. Talk to a qualified professional about your specific facts before making any decisions.
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