Part V. Unrelated Debt-Financed — 2025 Inst 990-T (PDF)

Use Schedule A (Form 990-T), Part V, to compute unrelated debt-financed income described in sections 512(b)(4) and 514 from debt-financed property only to the extent that the income doesn’t constitute income from the conduct of an unrelated trade or business and isn’t specifically taxable under other provisions of the Code, such as taxable rents from personal property leased with real property reportable on Schedule A (Form 990-T), Part IV (and Schedule A (Form 990-T), Part I, line 6), or taxable interest, annuities, royalties, and rents from a controlled entity reportable on Schedule A (Form 990-T), Part VI (and Schedule A (Form 990-T), Part I, line 8). See Regulations section 1.514(b)-1(b)(2). Refer to Regulations section 1.512(a)-6 when reporting income from one or more debt-financed properties and also for rules permitting the aggregation of unrelated debt-financed income with other UBTI in certain circumstances. Gain or loss from the sale or disposition of debt-financed property is reported on Schedule A (Form 990-T), Part I, line 4.

Section 501(c)(7), (9), and (17) organizations should report income from debt-financed property on Schedule A (Form 990-T), Part VII (and Schedule A (Form 990-T), Part I, line 9).

When a debt-financed property is held for exempt purposes and other purposes, the organization must allocate the basis, debt, income, and deductions among the purposes for which the property is held. Don’t include on Schedule A (Form 990-T), Part V, amounts allocated to exempt purposes.

Caution: For section 514 purposes, don’t treat an interest in a qualified state tuition program (QSTP) as debt. However, a QSTP’s investment income is treated as debt-financed income if the QSTP incurs indebtedness when acquiring or improving income-producing property.

A property held to produce income is debt-financed property if, at any time during the tax year, there was acquisition indebtedness outstanding for the property. When a property held for the production of income by an organization is disposed of at a gain during the tax year, and there was acquisition indebtedness outstanding for that property at any time during the 12-month period before the date of disposition, the property is debt-financed property. Securities purchased on margin are considered debt-financed property if the liability incurred in purchasing them remains outstanding.

Acquisition indebtedness is the outstanding amount of principal debt incurred by the organization to acquire or improve the property. Acquisition indebtedness also includes indebtedness incurred:

Before the property was acquired or improved, if the indebtedness would not have been incurred but for such acquisition or improvement of the property; or
After the property was acquired or improved, if the indebtedness would not have been incurred but for such acquisition or improvement and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition or improvement. See Regulations section 1.514(c)-1(a).

With certain exceptions, acquisition indebtedness doesn’t include debt incurred by the following.

A qualified (section 401) trust in acquiring or improving real property. See section 514(c)(9).
A tax-exempt school (section 170(b)(1)(A)(ii)) and its affiliated support organizations (section 509(a)(3)) for indebtedness incurred after July 18, 1984.
An organization described in section 501(c)(25) in tax years beginning after December 31, 1986.
An obligation, to the extent that it is insured by the Federal Housing Administration, to finance the purchase, rehabilitation, or construction of housing for low and moderate income persons, or indebtedness incurred by a small business investment company licensed after October 22, 2004, under the Small Business Investment Act of 1958 if such indebtedness is evidenced by a debenture issued by such company under section 303(a) of that Act, and held or guaranteed by the Small Business Administration (see section 514(c)(6)(B) for limitations).
A retirement income account described in section 403(b)(9) in acquiring or improving real property in tax years beginning on or after August 17, 2006.

See Pub. 598 for additional exceptions to the rules for debt-financed property.

Example 1. An exempt organization owns a four-story building. Two floors are used for an exempt purpose and two floors are rented (as an unrelated trade or business) for $10,000. Expenses are $1,000 for depreciation and $5,000 for other expenses that relate to the entire building. The average acquisition indebtedness is $6,000, and the average adjusted basis is $10,000. Both apply to the entire building.

Example 2. Assume the same facts as in Example 1, except the entire building is rented out as an unrelated trade or business for $20,000. To complete Schedule A (Form 990-T), Part V, for this example, enter $20,000 on Schedule A (Form 990-T), Part V, line 2; $1,000 and $5,000 on Schedule A (Form 990-T), Part V, lines 3(a) and 3(b), respectively (since the entire amount is for debt-financed property); $6,000 and $10,000 on Schedule A (Form 990-T), Part V, lines 4 and 5 (since the entire amount is for debt-financed property); 60% on Schedule A (Form 990-T), Part V, line 6; $12,000 on Schedule A (Form 990-T), Part V, line 7; and $3,600 on Schedule A (Form 990-T), Part V, line 9.

Description of Debt-Financed Property

Line 1. Enter the address of the debt-financed property. If the debt-financed property isn’t real property, enter the address where the property is located and describe the property in Schedule A (Form 990-T), Part XI, Supplemental Information.

30 Instructions for Form 990-T (2025)

Check the box next to the property description if the property is used both to carry on exempt activities and to conduct unrelated trade or business activities.

Gross Income From or Allocable to Debt-Financed Property

Line 2. Enter the gross income from debt financed property, excluding income otherwise included in UBTI. For example, don’t include rents from personal property shown on Schedule A (Form 990-T), Part IV, or rents and interest from controlled organizations shown on Schedule A (Form 990-T), Part VI.

Straight Line Depreciation

Line 3a. For amounts shown on Schedule A (Form 990-T), Part V, line 3a, attach a statement showing, for each property:

The cost or salvage value,
The year acquired,
The property’s useful life (rounded to a whole number if necessary),
The years remaining (rounded to a whole number if necessary),
The annual depreciation expense amount, and
The allowable depreciation expense amount.

Amount of Average Acquisition Debt on or Allocable to Debt-Financed Property

Line 4. Average acquisition indebtedness for any tax year is the average amount of the outstanding principal debt during the part of the tax year the property is held by the organization. To figure the average amount of acquisition debt, determine the amount of the outstanding principal debt on the first day of each calendar month during that part of the tax year that the organization holds the property. Add these amounts together, and divide the result by the total number of months during the tax year that the organization held the property. See section 514(a) and the related regulations for property acquired for an indeterminate price.

The average amount of acquisition debt,
The percent allocable to debt-financed income, and
The product of (1) multiplied by (2).

Average Adjusted Basis of or Allocable to Debt-Financed Property

Line 5. The average adjusted basis for debt-financed property is the average of the adjusted basis of the property on the first and last days during the tax year that the organization holds the property. Determine the adjusted basis of property under section 1011. Adjust the basis of the property by the depreciation for all earlier tax years, whether or not the organization was exempt from tax for any of these years. Similarly, for tax years during which the organization is subject to tax on UBTI, adjust the basis of the property by the entire amount of allowable

depreciation, even though only a part of the deduction for depreciation is taken into account in figuring UBTI.

Attach a statement showing, for each property:

A brief description of the property,
The adjusted basis,
The percent allocable to debt-financed income, and
The product of (3) multiplied by (4).

If no adjustments to the basis of property under section 1011 apply, the basis of the property is cost. See section 514(d) and the related regulations for the basis of debt-financed property acquired in a complete or partial liquidation of a corporation in exchange for its stock.

Percentage

Line 6. Divide each property’s average acquisition indebtedness for the tax year by that property’s average adjusted basis during the period it is held in the tax year. This percentage cannot be more than 100%.

Gross Income Reportable

Line 7. The amount of income from debt-financed property included in unrelated trade or business income is figured by multiplying the property’s gross income by the percentage computed on Schedule A (Form 990-T), Part V, line 6.

Total Gross Income

Line 8. Enter on Schedule A (Form 990-T), Part V, line 8, the sum of amounts computed for each property on Schedule A (Form 990-T), Part V, line 7. Also, enter this amount on Schedule A (Form 990-T), Part I, line 7, column (A).

Allocable Deductions

Line 9. For each debt-financed property, multiply the total deductions directly connected to the income (including the dividends-received deductions allowed by sections 243, 244, and 245) by the percentage computed on Schedule A (Form 990-T), Part V, line 6. However, if the debt-financed property is depreciable property, figure the depreciation deduction by the straight line method only and enter the amount on Schedule A (Form 990-T), Part V, line 3a.

When a capital loss for the tax year may be carried back or carried over to another tax year, the amount to carry over or back is figured by using the percentage determined above. However, in the year to which the

For each debt-financed property, attach statements showing separately a computation of the depreciation deduction (if any) reported on Schedule A (Form 990-T), Part V, line 3a, (as described earlier) and a breakdown of the expenses included on Schedule A (Form 990-T), Part V, line 3b. Corporations owning stock that is unrelated debt-financed property should see Schedule C. Dividends, Inclusions, and Special Deductions in Form 1120, U.S. Corporation Income Tax Return, to determine the dividends-received deductions to include on Schedule A (Form 990-T), Part V, line 3b.

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amounts are carried, don’t apply the debt-basis percentage to determine the deduction for that year.

Total Allocable Deductions

Line 10. Enter the sum of amounts computed for each property on Schedule A (Form 990-T), Part V, line 9. Also enter this amount on Schedule A (Form 990-T), Part I, line 7, column (B).

Total Dividends

Line 11. Enter the total dividends-received deductions (after reduction, when applicable, by the debt-basis percentage(s)) included on Schedule A (Form 990-T), Part V, line 9.