Unrelated Debt Financed Income (UDFI) is a type of income generated within a tax-advantaged retirement account—like a Solo 401k or self-directed IRA—when the account uses borrowed money (leverage) to acquire an investment, such as real estate. The portion of the income attributable to the debt is considered unrelated to the account’s tax-exempt purpose and may be subject to Unrelated Business Income Tax (UBIT). For example, if a Solo 401k buys a rental property using a non-recourse loan, the rental income tied to the financed portion is treated as UDFI. While Solo 401ks can invest in real estate and use leverage, it’s important to understand when UDFI rules apply, as the account may need to file IRS Form 990-T and pay taxes on that portion of the income.