@OldStachesRule
That is my understanding. However every year you have an unrelated third party (tax assessor, appraiser, realtor, etc) report the value of the asset to the Self Directed IRA Administrator. For example, I just bought a quadplex for $140,000 that appraised for $185,000. I financed 99% of the purchase price, but that is only 75%LTV. So my understanding (and what I am still trying to confirm) is that I only have to pay UBIT on 75% of my income. I get to take out transaction costs, all expenses, interest, and depreciation. Then I pay taxes on 75% of the income that is left. The issue with this is the trust tax rates go up to 39.6% REALLY Fast. The break is $12,150.
That being said... I wouldn't have the asset at all without the leverage and it it is amortized over 15 years. Even if I make half as much now it will be paid off when I am 45 (provided I don't pay it off sooner) and I will get to stop paying trust taxes on it then.
I am also going to see if holding the note in my IRA by itself without it attached to a particular property changes the way it is taxed. One of my private lenders would let me shift my mortgage to a personal loan to the IRA. Even if it costs me a percentage point on the loan rate it will still be less than the potential tax liability.
I will let you know where I end up.