Abstract
Investors in tax exempt real estate, such as pension funds, hold an increasing share of real estate but they run the risk of generating unrelated business taxable income (UBTI). The Internal Revenue Code Section 401 defines certain rents as undeserving of favorable tax treatment, especially if the rent-generating property is financed by debt--"acquisition indebtedness". This makes some UBTI unavoidable. The question is what fraction of the average adjusted basis of the property the UBTI represents and how to write that expense off against future losses.