Deductions

So, once you have factored out all the exclusions, you can apply deductions to whatever income is left over.

Right, Tim—the deductions come last. But remember, when calculating unrelated business taxable income, deductions like expenses, depreciation, and similar items must be directly connected with carrying on an unrelated trade or business. Also, they must not be directly connected to any excluded income.

Expenses

You have to consider three categories when applying expenses as deductions to the UBI tax calculation. Some expenses are allowable, while others are not.

Expenses incurred solely from the conduct of an unrelated business generally qualify for deduction because they are directly connected to that business.

Salaries of full-time personnel employed to carry on an unrelated business qualify for deduction. So too does the depreciation of a building used entirely in the conduct of that business.