1120-REIT Instructions for Form 1120-REIT

2019

Department of the Treasury
Internal Revenue Service

Instructions for Form
1120-REIT
U.S. Income Tax Return for Real Estate Investment Trusts
Section references are to the Internal Revenue
Code unless otherwise noted.

Contents
Photographs of Missing Children
The Taxpayer Advocate Service .
How To Get Forms and
Publications . . . . . . . . . . .
General Instructions . . . . . . . . .
Purpose of Form . . . . . . . . . . .
Who Must File . . . . . . . . . . . .
General Requirements To Qualify
as a REIT . . . . . . . . . . . .
Other Requirements . . . . . . . .
Termination of Election . . . . . . .
Taxable REIT Subsidiaries (TRS)
Where To File . . . . . . . . . . . . .
When To File . . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . .
Paid Preparer Authorization . . . .
Assembling the Return . . . . . . .
Tax Payments . . . . . . . . . . . .
Estimated Tax Payments . . . . .
Interest and Penalties . . . . . . . .
Accounting Methods . . . . . . . .
Accounting Period . . . . . . . . . .
Rounding Off to Whole Dollars . .
Recordkeeping . . . . . . . . . . . .
Other Forms That May Be
Required . . . . . . . . . . . . .
Statements . . . . . . . . . . . . . .
Specific Instructions . . . . . . . . .
Period Covered . . . . . . . . . . .
Name and Address . . . . . . . . .
Item B. 100%-owned Subsidiaries
and Personal Holding
Companies . . . . . . . . . . .
Item C. Employer Identification
Number (EIN) . . . . . . . . . .
Item D. Date REIT Established . .
Item E. Total Assets . . . . . . . . .
Item F. Final Return, Name
Change, Address Change, or
Amended Return . . . . . . . .
Item G. Type of REIT . . . . . . . .
Item H. PBA Code (Equity REITs
Only) . . . . . . . . . . . . . . .
Part I—Real Estate Investment
Trust Taxable Income . . . .
Part II—Tax on Net Income From
Foreclosure Property . . . . .
Part III—Tax for Failure To Meet
Certain Source-of-Income
Requirements . . . . . . . . . .
Part IV—Tax on Net Income From
Prohibited Transactions . . .

Mar 02, 2020

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Contents
Schedule A—Deduction for
Dividends Paid . . . . . . . . .
Schedule J—Tax Computation . .
Schedule K—Other Information .
Schedule L—Balance Sheets per
Books . . . . . . . . . . . . . . .
Schedule M-1 . . . . . . . . . . . . .

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Future Developments

For the latest information about
developments related to Form 1120-REIT
and its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form1120REIT.

What’s New
Increase in penalty for failure to file.
For returns due after December 31, 2019,
the minimum penalty for failure to file a
return that is more than 60 days late has
increased to the smaller of the tax due or
$435. See Late filing of return, later.
Disaster relief for charitable contributions. The 10% limit on the deduction for
charitable contributions does not apply to
contributions made after December 31,
2017, and before February 19, 2020, to
certain charitable organizations for relief in
qualified disaster areas. See Temporary
suspension of 10% limitation for certain
disaster-related contributions, later.
Employee retention credit. Eligible
employers in certain disaster areas can
use Form 5884-A to report the employee
retention credit. See Form 5884-A and the
Instructions for Form 5884-A.

Photographs of Missing
Children

The Internal Revenue Service is a proud
partner with the National Center for
Missing & Exploited Children® (NCMEC).
Photographs of missing children selected
by the Center may appear in instructions
on pages that would otherwise be blank.
You can help bring these children home
by looking at the photographs and calling
1-800-THE-LOST (1-800-843-5678) if you
recognize a child.

. . . 15
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Cat. No. 64243J

The Taxpayer Advocate
Service

The Taxpayer Advocate Service (TAS) is
an independent organization within the
IRS that helps taxpayers and protects
taxpayer rights. TAS's job is to ensure that
every taxpayer is treated fairly and knows
and understands their rights under the
Taxpayer Bill of Rights.
As a taxpayer, the REIT has rights that
the IRS must abide by in its dealings with
the REIT. TAS can help the REIT if:
• A problem is causing financial difficulty
for the business;
• The business is facing an immediate
threat of adverse action; or
• The REIT has tried repeatedly to
contact the IRS but no one has
responded, or the IRS hasn't responded
by the date promised.
The TAS tax toolkit at
www.taxpayeradvocate.irs.gov can help
the REIT understand these rights.
TAS has offices in every state, the
District of Columbia, and Puerto Rico.
Local advocates' numbers are in their
local directories and at
www.taxpayeradvocate.irs.gov. The REIT
can also call TAS at 1-877-777-4778.
TAS also works to resolve large-scale
or systemic problems that affect many
taxpayers. If the REIT knows of one of
these broad issues, please report it to TAS
through the Systemic Advocacy
Management System at IRS.gov/SAMS.
For more information, go to IRS.gov/
Advocate.

How To Get Forms
and Publications
Internet. You can access the IRS website
24 hours a day, 7 days a week, at IRS.gov
to:
• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword;
• View Internal Revenue Bulletins (IRBs)
published in recent years; and
• Sign up to receive local and national tax
news by email.

Tax forms and publications. The REIT
can download or print all of the forms and
publications it may need at IRS.gov/
FormsPubs.
Otherwise, the REIT can go to IRS.gov/
OrderForms to place an order and have
forms mailed to it. The REIT should
receive its order within 10 business days.

General Instructions
Purpose of Form

Use Form 1120-REIT, U.S. Income Tax
Return for Real Estate Investment Trusts,
to report the income, gains, losses,
deductions, credits, certain penalties, and
to figure the income tax liability of a REIT.

Who Must File

A corporation, trust, or association that
meets certain conditions (discussed
below) must file Form 1120-REIT if it
elects to be treated as a REIT for the tax
year (or has made that election for a prior
tax year and the election has not been
terminated or revoked). The election is
made by figuring taxable income as a
REIT on Form 1120-REIT.
Qualified opportunity funds. To be
certified as a qualified opportunity fund,
the corporation must file Form 1120-REIT
and attach Form 8996, even if the
corporation had no income or expenses to
report. See Schedule K, Question 12.
Also, see the Instructions for Form 8996.

General Requirements To
Qualify as a REIT

To qualify as a REIT, an organization:
• Must be a corporation, trust, or
association.
• Must be managed by one or more
trustees or directors.
• Must have beneficial ownership (a)
evidenced by transferable shares, or by
transferable certificates of beneficial
interest; and (b) held by 100 or more
persons. (The REIT does not have to meet
this requirement until its 2nd tax year.)
• Would otherwise be taxed as a
domestic corporation.
• Must be neither a financial institution
(referred to in section 582(c)(2)), nor a
subchapter L insurance company.
• Cannot be closely held, as defined in
section 856(h). (The REIT does not have
to meet this requirement until its 2nd tax
year.)
If a REIT meets the requirement for
ascertaining actual ownership (see
Regulations section 1.857-8 for details),
and did not know (after exercising
reasonable diligence), or have reason to
know, that it was closely held, it will be
treated as meeting the requirement that it
is not closely held.

Other Requirements

The gross income and diversification of
investment requirements of section 856(c)
must be met and the organization must:
• Have been treated as a REIT for all tax
years beginning after February 28, 1986,
or
• Had, at the end of the tax year, no
accumulated earnings and profits from
any tax year that it was not a REIT.
For this purpose, distributions are
treated as made from the earliest earnings
and profits accumulated in any non-REIT
tax year. See section 857(d)(3).
• The organization must adopt a calendar
tax year unless it first qualified for REIT
status before October 5, 1976.
• The deduction for dividends paid
(excluding net capital gain dividends, if
any) must equal or exceed:
1. 90% of the REIT's taxable income
(excluding the deduction for dividends
paid and any net capital gain); plus
2. 90% of the excess of the REIT's net
income from foreclosure property over the
tax imposed on that income by section
857(b)(4)(A); less
3. Any excess noncash income as
determined under section 857(e).
See sections 856 and 857, and the
related regulations for details and
exceptions.

Termination of Election

The election to be treated as a REIT
remains in effect until terminated, revoked,
or the REIT has failed to meet the
requirements of the statutory relief
provisions. It terminates automatically for
any tax year in which the corporation,
trust, or association is not a qualified
REIT.
The organization may revoke the
election for any tax year after the 1st tax
year the election is effective by filing a
statement with the service center where it
files its income tax return. The statement
must be filed on or before the 90th day
after the 1st day of the tax year for which
the revocation is to be effective. The
statement must include the following:
• The name, address, and employer
identification number of the organization;
• The tax year for which the election was
made;
• A statement that the organization
(according to section 856(g)(2)) revokes
its election under section 856(c)(1) to be a
REIT; and
• The signature of an official authorized
to sign the income tax return of the
organization.
The organization may not make a new
election to be taxed as a REIT during the 4
years following the 1st year for which the
termination or revocation is effective. See
section 856(g)(4) for exceptions.
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Taxable REIT Subsidiaries
(TRS)

A REIT may own up to 100% of the stock
in one or more taxable REIT subsidiaries
(TRS). A TRS must be a corporation
(other than a REIT or a qualified REIT
subsidiary) and may provide services to
the REIT's tenants without disqualifying
the rent received by the REIT. See section
856(l) for details, including certain
restrictions on the type of business
activities a TRS may perform. Also, not
more than 20% of the fair market value
(FMV) of a REIT's total assets (25% for tax
years beginning after July 30, 2008, and
no later than December 31, 2017) may be
securities of one or more TRSs (see
section 856(c)(4) for details).

Transactions between a TRS and its
associated REIT must be at arm's length.
A REIT may be subject to a 100% tax to
the extent it improperly allocates income
and deductions between the REIT and the
TRS (see section 857(b)(7) for details).
Additional limitations on transactions
between a TRS and its associated REIT
include:
• Limitations on income from a TRS that
may be treated as rents from real property
by the REIT (see section 856(d)(8)).
• Limitations on a TRS's deduction for
interest paid to its associated REIT (see
section 163(j)).
To elect to have an eligible corporation
treated as a TRS, the corporation and the
REIT must jointly file Form 8875, Taxable
REIT Subsidiary Election.
Restrictions on tax-free spinoffs from
REITs. For distributions after December
6, 2015, a REIT is generally ineligible to
participate in a tax-free spinoff as either a
distributing or controlled corporation under
section 355. This general rule does not
apply if both the distributing corporation
and the controlled corporation are REITs
immediately after the distribution. Also, a
REIT may spin off a TRS if the following
apply.
• The distributing corporation has been a
REIT at all times during the 3-year period
ending on the date of distribution;
• The controlled corporation has been a
TRS of the REIT at all times during such
period; and
• The REIT has had control (as defined in
section 368(c) applied by taking into
account stock owned, directly and
indirectly, including through partnerships,
by the REIT) of the TRS at all times during
such period.
A controlled corporation is treated as
meeting the control requirements if the
stock of the corporation was distributed by
a TRS in a transaction to which section
355 applies and the assets of the
corporation consist solely of the stock or
assets held by one or more TRSs of the

distributing corporation meeting the
control requirements described above.
If a corporation that is not a REIT was a
distributing or controlled corporation with
respect to any distribution to which section
355 applied, the corporation will not be
eligible to make a REIT election for any tax
year beginning before the end of the
10-year period beginning on the date of
such distribution.
See sections 355(h) and 856(c)(8) for
more details.
Note. These rules do not apply to any
distribution pursuant to a transaction
described in a ruling request initially
submitted to the IRS on or before such
date, which request has not been
withdrawn and with respect to a ruling has
not been issued or denied in its entirety as
of such date.

When To File

Generally, a REIT must file its income tax
return by the 15th day of the 4th month
after the end of its tax year. A new REIT
filing a short period return generally must
file by the 15th day of the 4th month after
the short period ends. A REIT that has
dissolved generally must file by the 15th
day of the 4th month after the date it
dissolved.

However, a REIT with a fiscal tax year
ending June 30 must file by the 15th day
of the 3rd month after the end of its tax
year. A REIT with a short tax year ending
anytime in June will be treated as if the
short year ended on June 30, and must file
by the 15th day of the 3rd month after the
end of its tax year.
If the due date falls on a Saturday,
Sunday, or legal holiday, the REIT can file
on the next business day.

Private Delivery Services

The REIT can use certain private delivery
services (PDS) designated by the IRS to
meet the “timely mailing as timely filing”
rule for tax returns. Go to IRS.gov/PDS for
the current list of designated services.
The PDS can tell you how to get written
proof of the mailing date.
For the IRS mailing address to use if
you're using PDS, go to IRS.gov/
PDSStreetAddresses.
Private delivery services can't
deliver items to P.O. boxes. You
CAUTION must use the U.S. Postal Service
to mail any item to an IRS P.O. box
address.

!

Extension of Time To File

File Form 7004, Application for Automatic
Extension of Time To File Certain
Business Income Tax, Information, and
Other Returns, to request an extension of

time to file. Generally, file Form 7004 by
the regular due date of the REIT's income
tax return. See the Instructions for Form
7004 for more information.

Who Must Sign

The return must be signed and dated by:
• The president, vice president, treasurer,
assistant treasurer, chief accounting
officer; or
• Any other corporate officer (such as a
tax officer) authorized to sign.
If a return is filed on behalf of a REIT by
a receiver, trustee, or assignee, the
fiduciary must sign the return, instead of
the corporate officer. Returns and forms
signed by a receiver or trustee in
bankruptcy on behalf of a REIT must be
accompanied by a copy of the order or
instructions of the court authorizing
signing of the return or form.
If an employee of the REIT completes
Form 1120-REIT, the paid preparer's
space should remain blank. Anyone who
prepares Form 1120-REIT but does not
charge the REIT should not complete that
section. Generally, anyone who is paid to

prepare the return must sign it and fill in
the “Paid Preparer Use Only” section.
The paid preparer must complete the
required preparer information and:
• Sign the return in the space provided
for the preparer's signature, and
• Give a copy of the return to the
taxpayer.
A paid preparer may sign the

TIP original or amended returns by

rubber stamp, mechanical device,
or computer software program.

Paid Preparer
Authorization

If the REIT wants to allow the IRS to
discuss its 2019 tax return with the paid
preparer who signed it, check the “Yes”
box in the signature area of the return.
This authorization applies only to the
individual whose signature appears in the
“Paid Preparer Use Only” section of the
REIT's return. It does not apply to the firm,
if any, shown in that section.
If the “Yes” box is checked, the REIT is
authorizing the IRS to call the paid

Where To File
File the REIT's return at the applicable IRS address listed below.
If the REIT's principal
And the total assets at
business, office, or agency the end of the tax year
is located in:
are:

Use the following address:

Connecticut, Delaware,
Less than $10 million and
District of Columbia, Georgia,
Schedule M-3 is not filed
Illinois, Indiana, Kentucky,
Maine, Maryland,
Massachusetts, Michigan,
New Hampshire, New
Jersey, New York, North
$10 million or more, or
Carolina, Ohio,
less than $10 million and
Pennsylvania, Rhode Island,
Schedule M-3 is filed
South Carolina, Tennessee,
Vermont, Virginia, West
Virginia, Wisconsin

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999-0012

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0012

Alabama, Alaska, Arizona,
Arkansas, California,
Colorado, Florida, Hawaii,
Idaho, Iowa, Kansas,
Louisiana, Minnesota,
Mississippi, Missouri,
Montana, Nebraska, Nevada,
New Mexico, North Dakota,
Oklahoma, Oregon, South
Dakota, Texas, Utah,
Washington, Wyoming

Any Amount

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0012

A foreign country or U.S.
possession

Any Amount

Internal Revenue Service
P.O. Box 409101
Ogden, UT 84409

A group of corporations with members located in more than one service center area will
often keep all the books and records at the principal office of the managing corporation.
In this case, the tax returns of the corporations may be filed with the service center for
the area in which the principal office of the managing corporation is located.
-3-

preparer to answer any questions that
may arise during the processing of its
return. The REIT is also authorizing the
paid preparer to:
• Give the IRS any information that is
missing from the return,
• Call the IRS for information about the
processing of the return or the status of
any related refund or payment(s), and
• Respond to certain IRS notices about
math errors, offsets, and return
preparation.
The REIT is not authorizing the paid
preparer to receive any refund check, bind
the REIT to anything (including any
additional tax liability), or otherwise
represent the corporation before the IRS.
The authorization will automatically end
no later than the due date (without regard
to extensions) for filing the REIT's 2020
tax return. If the REIT wants to expand the
paid preparer's authorization, see Pub.
947, Practice Before the IRS and Power of
Attorney.

Assembling the Return

To ensure that the REIT's tax return is
correctly processed, attach all schedules
and other forms after page 4 of Form
1120-REIT, in the following order.
1. Schedule N (Form 1120).
2. Schedule D (Form 1120).
3. Form 8949.
4. Form 8996.
5. Form 4136.
6. Form 8978.
7. Form 965-B.
8. Form 8941.
9. Form 3800.
10. Additional schedules in
alphabetical order.
11. Additional forms in numerical order.
12. Supporting statements and
attachments.
Complete every applicable entry space
on Form 1120-REIT. Do not enter “See
attached” instead of completing the entry
spaces. If more space is needed on the
forms or schedules, attach separate
sheets using the same size and format as
the printed forms.
If there are supporting statements and
attachments, arrange them in the same
order as the schedules or forms they
support and attach them last. Show the
totals on the printed forms. Enter the
REIT's name and EIN on each supporting
statement or attachment.

Tax Payments

Generally, the REIT must pay the tax due
in full no later than the due date for filing its
tax return (not including extensions). See
the instructions for line 27, later. If the due

date falls on a Saturday, Sunday, or legal
holiday, the payment is due on the next
day that isn't a Saturday, Sunday, or legal
holiday.

Electronic Deposit
Requirement

REITs must use electronic funds transfer
to make all federal tax deposits (such as
deposits of employment, excise, and
corporate income tax). Generally,
electronic funds transfers are made using
the Electronic Federal Tax Payment
System (EFTPS). However, if the REIT
does not want to use EFTPS, it can
arrange for its tax professional, financial
institution, payroll service, or other trusted
third party to make deposits on its behalf.
Also, it may arrange for its financial
institution to submit a same-day tax wire
payment (discussed below) on its behalf.
EFTPS is a free service provided by the
Department of the Treasury. Services
provided by a tax professional, financial
institution, payroll service, or other third
party may have a fee.
To get more information about EFTPS
or to enroll in EFTPS, visit EFTPS.gov, or
call 1-800-555-4477 (TTY/TDD
1-800-733-4829).

Depositing on time. For any deposit
made by EFTPS to be on time, the REIT
must submit the deposit by 8 p.m. Eastern
time the day before the date the deposit is
due. If the REIT uses a third party to make
deposits on its behalf, they may have
different cutoff times.
Same-day wire payment option. If the
REIT fails to submit a deposit transaction
on EFTPS by 8 p.m. Eastern time on the
day before the date a deposit is due, it can
still make its deposit on time by using the
Federal Tax Collection Service (FTCS).
To use the same-day payment method,
the REIT will need to make arrangements
with its financial institution ahead of time
regarding availability, deadlines, and
costs. Financial institutions may charge a
fee for payments made this way. To learn
more about the information the REIT will
need to provide its financial institution to
make a same-day wire payment, visit the
IRS website at IRS.gov/SameDayWire.

Estimated Tax Payments

Generally, the following rules apply to the
REIT's payments of estimated tax.
• The REIT must make installment
payments of estimated tax if it expects its
total tax for the year (less applicable
credits) to be $500 or more.
• The REIT must use electronic funds
transfer to make installment payments of
estimated tax.
• The installments are due by the 15th
day of the 4th, 6th, 9th, and 12th months
of the tax year. If any date falls on a
Saturday, Sunday, or legal holiday, the
-4-

installment is due on the next regular
business day.
• Use Form 1120-W, Estimated Tax for
Corporations, as a worksheet to compute
estimated tax. See the Instructions for
Form 1120-W.
• If the REIT overpaid its estimated tax, it
may be able to get a quick refund by filing
Form 4466, Corporation Application for
Quick Refund of Overpayment of
Estimated Tax. The overpayment must be
at least 10% of the REIT's expected
income tax liability and at least $500.
For more information, including
penalties, see the instructions for line 26,
later.

Interest and Penalties
If the corporation receives a notice
about penalties after it files its
CAUTION return, send the IRS an
explanation and we will determine if the
corporation meets reasonable-cause
criteria. Do not attach an explanation
when the corporation’s return is filed.

!

Interest. Interest is charged on taxes
paid late even if an extension of time to file
is granted. Interest is also charged on
penalties imposed for failure to file,
negligence, fraud, substantial valuation
misstatements, and substantial
understatements of tax from the due date
(including extensions) to the date of
payment. The interest charge is figured at
a rate determined under section 6621.
Late filing of return. A REIT that does
not file its tax return by the due date,
including extensions, may be penalized
5% of the unpaid tax for each month or
part of a month the return is late, up to a
maximum of 25% of the unpaid tax. The
minimum penalty for a return that is over
60 days late is the smaller of the tax due
or $435. The penalty will not be imposed if
the REIT can show that the failure to file
on time was due to reasonable cause. See
Caution above.
Late payment of tax. A REIT that does
not pay the tax when due generally may
be charged a penalty for the failure to pay
tax. The amount of the penalty is 1/2 of 1%
of the unpaid tax for each month or part of
a month the tax is not paid, up to a
maximum of 25% of the unpaid tax. The
penalty will not be imposed if the REIT can
show that the failure to pay on time was
due to reasonable cause. See Caution
above.
Trust fund recovery penalty. This
penalty may apply if certain excise,
income, social security, and Medicare
taxes that must be collected or withheld
are not collected or withheld, or these
taxes are not paid. These taxes are
generally reported on:

• Form 720, Quarterly Federal Excise
Tax Return;
• Form 941, Employer's QUARTERLY
Federal Tax Return;
• Form 943, Employer Annual Federal
Tax Return for Agricultural Employees;
• Form 944, Employer's ANNUAL
Federal Tax Return; or
• Form 945, Annual Return of Withheld
Federal Income Tax.
The trust fund recovery penalty may be
imposed on all persons who are
determined by the IRS to be responsible
for collecting, accounting for, or paying
over these taxes, and who acted willfully in
not doing so. The penalty is equal to the
full amount of the unpaid trust fund tax.
See the Instructions for Form 720 or Pub.
15 (Circular E), Employer's Tax Guide, for
details, including the definition of
responsible persons.
Failure to ascertain ownership. If the
REIT fails to comply with Regulations
section 1.857-8 for ascertaining ownership
and maintaining factual ownership records
for a tax year, it must pay a $25,000
penalty ($50,000 for intentional disregard)
upon notice and demand by the IRS. If the
REIT can show that the failure was due to
reasonable cause, the penalty may not be
imposed. For more information, see
section 857(f).
Failure to satisfy certain REIT qualification provisions. If the REIT is required
to pay the $50,000 penalty under section
856(g)(5)(C) for each failure to satisfy a
REIT qualification provision of sections
856–859 (other than section 856(c)(2),
856(c)(3), or section 856(c)(4)) due to
reasonable cause and not willful neglect,
see the instructions for Schedule J, line 2f,
later.
Other penalties. Other penalties can be
imposed for negligence, substantial
understatement of tax, reportable
transaction understatements, and fraud.
See sections 6662, 6662A, and 6663.

Accounting Methods

Figure taxable income using the method of
accounting regularly used in keeping the
REIT's books and records. In all cases,
the method used must clearly show
taxable income.
Generally, permissible methods
include:
• Cash,
• Accrual, or
• Any other method authorized by the
Internal Revenue Code.
Accrual method. Generally, a REIT must
use the accrual method of accounting if its
average annual gross receipts for the 3
prior tax years exceed $26 million. See
section 448(c).

For more information, see Pub. 538,
Accounting Periods and Methods.
Change in accounting method.
Generally, the REIT must get IRS consent
to change either an overall method of
accounting or the accounting treatment of
any material item for income tax purposes.
To obtain consent, the REIT must
generally file Form 3115, Application for
Change in Accounting Method. See the
Instructions for Form 3115 and Pub. 538
for more information and exceptions.
Section 481(a) adjustment. If the
REIT's taxable income for the current tax
year is figured under a method of
accounting different from the method used
in the preceding tax year, the REIT may
have to make an adjustment under section
481(a) to prevent amounts of income or
expenses from being duplicated or
omitted. This is referred to as a “section
481(a) adjustment.” The section 481(a)
adjustment period is generally 1 year for a
net negative adjustment and 4 years for a
net positive adjustment. However, in some
cases, a REIT can elect to modify the
section 481(a) adjustment period. The
REIT must complete the appropriate lines
of Form 3115 to make the election. See
the Instructions for Form 3115 for more
information and exceptions. If the net
section 481(a) adjustment is positive,
report it on line 7 as other income. If the
net section 481(a) adjustment is negative,
report it on line 18 as a deduction.
Note. Include any net positive section
481(a) adjustment on page 1, line 7.
Report any negative adjustment on
page 1, line 18.

Accounting Period

A REIT must figure its taxable income on
the basis of a tax year. A tax year is the
annual accounting period a REIT uses to
keep its records and report its income and
expenses. A REIT adopts a tax year when
it files its first income tax return. It must
adopt a tax year by the due date (not
including extensions) of its initial income
tax return.
Note. A REIT must adopt a calendar year
unless it first qualified for REIT status
before October 5, 1976.

Change of tax year. A REIT may not
change its tax year to any tax year other
than the calendar year. Generally, a REIT
must receive consent from the IRS before
changing its tax year by filing Form 1128,
Application To Adopt, Change, or Retain a
Tax Year.
However, upon electing to be taxed as
a REIT, an entity that has not engaged in
any active trade or business may change
its tax year to a calendar year without
obtaining the consent.
-5-

See the Instructions for Form 1128 and
Pub. 538 for more information on
accounting periods and tax years.

Rounding Off to
Whole Dollars

The REIT may enter decimal points and
cents when completing its return.
However, the REIT should round off cents
to whole dollars on its return, forms, and
schedules to make completing its return
easier. The REIT must either round off all
amounts on its return to whole dollars, or
use cents for all amounts. To round, drop
amounts under 50 cents and increase
amounts from 50 to 99 cents to the next
dollar. For example, $8.40 rounds to $8
and $8.50 rounds to $9.
If two or more amounts must be added
to figure the amount to enter on a line,
include cents when adding the amounts
and round off only the total.

Recordkeeping

Keep the REIT's records for as long as
they may be needed for the administration
of any provision of the Internal Revenue
Code. Usually, records that support an
item of income, deduction, or credit on the
return must be kept for 3 years from the
date the return is due or filed, whichever is
later. Keep records that verify the REIT's
basis in property for as long as they are
needed to figure the basis of the original or
replacement property.
The REIT should also keep copies of
all filed returns. They help in preparing
future and amended returns and in the
calculation of earnings and profits.

Other Forms That May Be
Required

In addition to Form 1120-REIT, the REIT
may have to file some of the following
forms. Also, see Pub. 542, Corporations,
for an expanded list of forms the REIT may
be required to file.
Form 926, Return by a U.S. Transferor of
Property to a Foreign Corporation, is filed
to report certain transfers to foreign
corporations under section 6038B.
Form 965, Inclusion of Deferred Foreign
Income Upon Transition to Participation
Exemption System. Use Form 965 to
report income, deductions, and elections
under section 965.
Form 965-B, Corporate and Real Estate
Investment Trust (REIT) Report of Net 965
Tax Liability and Electing REIT Report of
965 Amounts. Use Form 965-B to report
includable and deferred net section 965
inclusions for taxable years beginning with
the tax year ended 2017.
Form 966, Corporate Dissolution or
Liquidation, is used to report the adoption

of a resolution or plan to dissolve the
corporation or liquidate any of its stock.
Form 976, Claim for Deficiency
Dividends Deductions by a Personal
Holding Company, Regulated Investment
Company, or a Real Estate Investment
Trust, is used to claim a deduction for
deficiency dividends. See section 860 and
the related regulations.
Forms 1042, Annual Withholding Tax
Return for U.S. Source Income of Foreign
Persons, Form 1042-S, Foreign Person's
U.S. Source Income Subject to
Withholding, and Form 1042-T, Annual
Summary and Transmittal of Forms
1042-S. Use these forms to report and
send withheld tax on payments or
distributions made to nonresident alien
individuals, foreign partnerships, or foreign
corporations to the extent these payments
constitute gross income from sources
within the United States (see sections 861
through 865).
Also, see sections 1441 and 1442, and
Pub. 515, Withholding of Tax on
Nonresident Aliens and Foreign Entities.
Form 1099-DIV, Dividends and
Distributions. Use this form to report
certain dividends and distributions.
Form 2438, Undistributed Capital Gains
Tax Return, must be filed by the REIT if it
designates undistributed net long-term
capital gains under section 857(b)(3)(C).
Form 2439, Notice to Shareholder of
Undistributed Long-Term Capital Gains,
must be completed and a copy given to
each shareholder for whom the REIT paid
tax on undistributed net long-term capital
gains under section 857(b)(3)(C).
Form 3520, Annual Return To Report
Transactions With Foreign Trusts and
Receipt of Certain Foreign Gifts, is
required either if the REIT received a
distribution from a foreign trust or if the
REIT was a grantor of, transferor of, or
transferor to a foreign trust that existed
during the tax year. See Question 5 of
Schedule N (Form 1120).
Form 5471, Information Return of U.S.
Persons With Respect to Certain Foreign
Corporations, is required if the REIT is a
U.S. shareholder of a controlled foreign
corporation, a specified foreign
corporation, or otherwise subject to the
reporting requirements of section 6038 or
6046, and the related regulations.
Form 5472, Information Return of a 25%
Foreign-Owned U.S. Corporation or a
Foreign Corporation Engaged in a U.S.
Trade or Business. This form is filed if the
REIT is 25% or more foreign owned. See
the instructions for Question 5,
Schedule K, later.
Form 6198, At-Risk Limitations. Use this
form if a REIT is closely held as described

in section 465(a)(1)(B), and (1) directly or
indirectly has any amounts not at risk that
are invested in an at-risk activity that
incurred a loss; or (2) engages in certain
activities and has borrowed amounts not
at risk. See section 465 and the
Instructions for Form 6198.
Form 8275, Disclosure Statement, and
Form 8275-R, Regulation Disclosure
Statement, are used to disclose items or
positions taken on a tax return that are not
otherwise adequately disclosed on a tax
return or that are contrary to Treasury
Regulations (to avoid parts of the
accuracy-related penalty or certain
preparer penalties).
Form 8300, Report of Cash Payments
Over $10,000 Received in a Trade or
Business. Use this form to report the
receipt of more than $10,000 in cash or
foreign currency in one transaction or a
series of related transactions.
Form 8612, Return of Excise Tax on
Undistributed Income of Real Estate
Investment Trusts, is filed if the REIT is
liable for the 4% excise tax on
undistributed income imposed under
section 4981.
Form 8621, Information Return by a
Shareholder of a Passive Foreign
Investment Company or Qualified Electing
Fund, is required if the REIT is a direct or
indirect shareholder of a passive foreign
investment company, as defined in
section 1297(a).
Form 8810, Corporate Passive Activity
Loss and Credit Limitations. Use this form
if a REIT is closely held as described in
section 469(j)(1), and has losses or credits
from passive activities. See section 469,
the related regulations, and the
Instructions for Form 8810.
Form 8865, Return of U.S. Persons With
Respect To Certain Foreign Partnerships.
A REIT may have to file Form 8865 if it:
1. Controlled a foreign partnership
(that is, owned more than a 50% direct or
indirect interest in the partnership).
2. Owned at least a 10% direct or
indirect interest in a foreign partnership
while U.S. persons controlled that
partnership.
3. Had an acquisition, disposition, or
change in proportional interest in a foreign
partnership that:
• Increased its direct interest to at least
10% or reduced its direct interest of at
least 10% to less than 10%.
• Changed its direct interest by at least a
10% interest.
4. Contributed property to a foreign
partnership in exchange for a partnership
interest if:
• Immediately after the contribution, the
REIT owned, directly or indirectly, at least
-6-

a 10% interest in the foreign partnership;
or
• The FMV of the property the REIT
contributed to the foreign partnership in
exchange for a partnership interest, when
added to other contributions of property
made to the foreign partnership during the
preceding 12-month period, exceeds
$100,000.
Also, the REIT may have to file Form
8865 to report certain dispositions by a
foreign partnership of property it
previously contributed to that foreign
partnership if it was a partner at the time of
the disposition. For more details, including
penalties for failing to file Form 8865, see
Form 8865 and its separate instructions.
Form 8875, Taxable REIT Subsidiary
Election, is filed jointly by a corporation
and a REIT to have the corporation treated
as a taxable REIT subsidiary.
Form 8927, Determination Under Section
860(e)(4) by a Qualified Investment Entity.
Use Form 8927 to make a determination
under section 860(e)(4) and to establish
the date of determination for purposes of
making a deficiency dividend distribution.
Form 8937, Report of Organizational
Action Affecting Basis of Securities. Use
this form when any organizational action
affects the basis of holders of either a
security or a class of the security. For
example, a REIT may use this form in
connection with transactions such as a
nontaxable cash or stock distribution to
shareholders, or a conversion rate
adjustment on a convertible debt
instrument that results in a distribution
under section 305(c). However, a REIT
that reports undistributed capital gains to
shareholders on Form 2439 can satisfy
the organizational action reporting
requirements for those undistributed gains
if the REIT timely files and gives Form
2439 to all proper parties for the
organizational action. For more
information, see the Instructions for Form
8937.
Form 8975, Country-by-Country Report.
Certain U.S. persons that are the ultimate
parent entity of a U.S. multinational
enterprise group with annual revenue for
the preceding reporting period of $850
million or more are required to file Form
8975. Form 8975 and its Schedules A
(Form 8975) must be filed with the income
tax return of the ultimate parent entity of a
U.S. multinational enterprise group for the
tax year in or within which the reporting
period covered by Form 8975 ends. The
first required reporting period for an
ultimate parent entity is the 12-month
reporting period that begins on or after the
first day of a tax year of the ultimate parent
entity that begins on or after June 30,
2016. For more information, see Form
8975, Schedule A (Form 8975) and the

Instructions for Form 8975 and
Schedule A (Form 8975).
Form 8990, Limitation on Business
Interest Expense Under Section 163(j).
Use this form to calculate the amount of
business interest expense you can deduct
and the amount to carry forward to the
next year.
Form 8992, U.S. Shareholder Calculation
of Global Intangible Low-Taxed Income
(GILTI). Use this form to figure the
domestic corporation's GILTI under
section 951A and attach it to Form
1120-REIT.
Form 8996, Qualified Opportunity Fund.
Use this form to certify that the REIT
organized as a qualified opportunity fund
(QOF) to invest in qualified opportunity
zone property. In addition, A QOF REIT
files Form 8996 annually to report that it
meets the 90% investment standard of
section 1400Z-2 or to compute the penalty
if it fails to meet the investment standard.
Form 8997, Initial and Annual Statement
of Qualified Opportunity Fund (QOF)
investments. Use this form to report
investments in one or more QOFs. Report
the amount of deferred gains invested in
QOFs for the current tax year, which
include capital gains deferred and
invested in QOFs and disposal
investments in QOFs, and the amount of
deferred gains invested in QOFs at the
end of the current tax year.

Statements
Reportable transaction disclosure
statement. Disclose information for each
reportable transaction in which the REIT
participated. Form 8886, Reportable
Transaction Disclosure Statement, must
be filed for each tax year that the federal
income tax liability of the REIT is affected
by its participation in the transaction. The
following are reportable transactions.
1. Any listed transaction, which is a
transaction that is the same as or
substantially similar to one of the types of
transactions that the IRS has determined
to be a tax avoidance transaction and
identified by notice, regulation, or other
published guidance as a listed
transaction.
2. Any transaction offered under
conditions of confidentiality for which the
REIT (or a related party) paid an advisor a
fee of at least $250,000.
3. Certain transactions for which the
REIT (or a related party) has contractual
protection against disallowance of the tax
benefits.
4. Certain transactions resulting in a
loss of at least $10 million in any single
year or $20 million in any combination of
years.

5. Any transaction identified by the
IRS by notice, regulation, or other
published guidance as a “transaction of
interest.” See Notice 2009-55, 2009-31
I.R.B. 170.
For more information, see Regulations
section 1.6011-4. Also, see the
Instructions for Form 8886.
Penalties. The REIT may have to pay
a penalty if it is required to disclose a
reportable transaction under section 6011
and fails to properly complete and file
Form 8886. Penalties may also apply
under section 6707A if the REIT fails to file
Form 8886 with its Form 1120-REIT, fails
to provide a copy of Form 8886 to the
Office of Tax Shelter Analysis (OTSA), or
files a form that fails to include all the
information required (or includes incorrect
information). Other penalties, such as an
accuracy-related penalty under section
6662A, may also apply. See the
Instructions for Form 8886 for details on
these and other penalties.
Reportable transactions by material
advisors. Material advisors to any
reportable transaction must disclose
certain information about the reportable
transaction by filing Form 8918, Material
Advisor Disclosure Statement, with the
IRS. For details, see the Instructions for
Form 8918.
Transfers to a corporation controlled
by the transferor. Every significant
transferor (as defined in Regulations
section 1.351-3(d)) that receives stock of
a corporation in exchange for property in a
nonrecognition event must include the
statement required by Regulations section
1.351-3(a) on or with the transferor's tax to
its return for the tax year of the exchange.
The transferee corporation must include
the statement required by Regulations
section 1.351-3(b) on or with its return for
the tax year of the exchange, unless all the
required information is included in any
statement(s) provided by a significant
transferor that is attached to the same
return for the same section 351 exchange.
If the transferor or transferee corporation
is a controlled foreign corporation, each
U.S. shareholder (within the meaning of
section 951(b)) must include the required
statement on or with its return.
Distributions under section 355. Every
REIT that makes a distribution of stock or
securities of a controlled corporation, as
described in section 355 (or so much of
section 356 as it relates to section 355),
must include the statement required by
Regulations section 1.355-5(a) on or with
its return for the year of the distribution. A
significant distributee (as defined in
Regulations section 1.355-5(c)) that
receives stock or securities of a controlled
corporation must include the statement
required by Regulations section
-7-

1.355-5(b) on or with its return for the year
of receipt. If the distributing or distributee
corporation is a controlled foreign
corporation, each U.S. shareholder (within
the meaning of section 951(b)) must
include the statement on or with its return.
Dual consolidated losses. If a domestic
corporation incurs a dual consolidated
loss (as defined in Regulations section
1.1503-2(c)(5)), the corporation (or
consolidated group) may need to attach
an elective relief agreement and/or an
annual certification as provided in
Regulations section 1.1503-2(g)(2).
Election to reduce basis under section
362(e)(2)(C). If property is transferred to
a corporation subject to section 362(e)(2),
the transferor and the acquiring
corporation may elect under section
362(e)(2)(C) to reduce the transferor's
basis in the stock received instead of
reducing the acquiring corporation's basis
in the property transferred. Once made,
the election is irrevocable. For more
information, see section 362(e)(2) and
Regulations section 1.362-4. If an election
is made, a statement must be filed in
accordance with Regulations section
1.362-4(d)(3).
Other forms and statements. See Pub.
542 for a list of other forms and
statements a corporation may need to file
in addition to the forms and statements
discussed throughout these instructions.

Specific Instructions
Period Covered

File the 2019 return for calendar year 2019
and fiscal years that begin in 2019 and
end in 2020. For a fiscal year return, fill in
the tax year in the space at the top of the
form.
Note. The 2019 Form 1120-REIT can
also be used if:

• The REIT has a tax year of less than 12
months that begins and ends in 2020; and
• The 2020 Form 1120-REIT is not
available at the time the REIT is required
to file its return.
The REIT must show its 2020 tax year
on the 2019 Form 1120-REIT and take
into account any tax law changes that are
effective for tax years beginning after
December 31, 2019.

Name and Address

Enter the REIT's true name (as set forth in
the charter or other legal document
creating it), address, and EIN on the
appropriate lines. Include the suite, room,
or other unit number after the street
address. Enter the address of the REIT's
principal office or place of business. If the
Post Office does not deliver mail to the

street address and the REIT has a P.O.
box, show the box number instead.
Note. Do not use the address of the
registered agent for the state in which the
corporation is incorporated. For example,
if a business is incorporated in Delaware
or Nevada and the corporation's principal
office is located in Little Rock, AR, the
corporation should enter the Little Rock
address.
If the REIT receives its mail in care of a
third party (such as an accountant or an
attorney), enter on the street address line
“C/O” followed by the third party's name
and street address or P.O. box.

Item B. 100%-owned
Subsidiaries and Personal
Holding Companies
REITs With 100%-owned
Subsidiaries

Check this box if this return is filed for a
REIT with 100%-owned REIT subsidiaries
under section 856(i). These subsidiaries
are not treated as separate corporations.
Do not check this box for a taxable
REIT subsidiary. See the instructions for
Taxable REIT Subsidiaries, earlier.

Personal Holding Companies

Personal holding companies must attach
to Form 1120-REIT a Schedule PH (Form
1120), U.S. Personal Holding Company
(PHC) Tax. See the Instructions for
Schedule PH (Form 1120) for details.

Item C. Employer
Identification Number
(EIN)

Enter the REIT's EIN. If the REIT does not
have an EIN, it must apply for one. An EIN
may be applied for:
• Online by visiting IRS.gov/EIN. The EIN
is issued immediately once the application
information is validated.
• By faxing or mailing Form SS-4,
Application for Employer Identification
Number.
If the REIT has not received its EIN by
the time the return is due, enter “Applied
for” in the space for the EIN. For more
details, see the Instructions for Form
SS-4.
Note. REITs located in the United States
or U.S. possessions can use the online
application process.

Item D. Date REIT
Established

Item E. Total Assets

Enter the REIT's total assets (as
determined by the accounting method
regularly used in keeping its books and
records) at the end of the tax year. If there
are no assets at the end of the tax year,
enter -0-.

Item F. Final Return, Name
Change, Address Change,
or Amended Return

• If this is the REIT's final return, and it
will no longer exist, check the “Final
return” box. See the instructions for
Termination of Election, earlier.
• If the REIT has changed its name since
it last filed a return, check the box for
“Name change.” Generally, a REIT must
also have amended its articles of
incorporation and filed the amendment
with the state in which it was incorporated.
• If the REIT has changed its address
since it last filed a return (including a
change to an “in care of” address), check
the box for “Address change.”
Note. If a change in address or
responsible party occurs after the return is
filed, use Form 8822-B, Change of
Address or Responsible Party—Business,
to notify the IRS of the new address. See
the instructions for Form 8822-B for
details.
• If the REIT is amending its return, check
the box for “Amended Return,” complete
the entire return, correct the appropriate
lines with the new information, and
refigure the REIT's tax liability. Attach a
statement that explains the reason for the
amendments and identifies the lines being
changed on the amended return.

Item G. Type of REIT

Check the appropriate box to indicate
whether you are filing a return for a
“Mortgage REIT” or an “Equity REIT.” If
the primary source of gross receipts is
derived from mortgage interest and fees,
check the “Mortgage” box. Otherwise,
check the “Equity” box.

Item H. PBA Code (Equity
REITs Only)

Enter only one code that best reflects the
principal business activity of an equity
REIT from the selection below.
• 531110– Lessors of Residential
Buildings & Dwellings
• 531120– Lessors of Nonresidential
Buildings (except Miniwarehouses)
• 531130– Lessors of Miniwarehouses &
Self-Storage Units
• 531190– Lessors of Other Real Estate
Property

If the REIT is a corporation under state or
local law, enter the date incorporated. If it
is a trust or association, enter the date
organized.
-8-

Part I—Real Estate
Investment Trust Taxable
Income

Include in Part I the REIT's share of gross
income from partnerships in which the
REIT is a partner, and the deductions
attributable to the gross income items.
See Regulations section 1.856-3(g).
Real estate investment trust taxable
income does not include the following.
• Gross income, gains, losses, and
deductions from foreclosure property
(defined in section 856(e)). If the
aggregate of such amounts results in net
income, report these amounts in Part II.
• Income or deductions from any
prohibited transaction (defined in section
857(b)(6)) resulting in a gain. Report these
amounts in Part IV.

Income
Line 1. Dividends. Enter the total
amount of dividends received during the
tax year.
Line 2. Interest. Enter taxable interest on
U.S. obligations and on loans, notes,
mortgages, bonds, bank deposits,
corporate bonds, tax refunds, etc. Do not
offset interest expense against interest
income. Special rules apply to interest
income from certain below-market-rate
loans. See section 7872 for details.
Note. Report tax-exempt interest income
on Form 1120-REIT, Schedule K, item 8.
Do not include tax-exempt interest on
line 2. Also, if required, include the same
amount on Schedule M-1, line 7.
Include interest income from tax credit
bonds on line 2.
Line 3. Gross rents. Include the
following.
• Charges for customary services that
may qualify as rents from real property are
described in Regulations section
1.856-4(b)(1). Services customarily
furnished to tenants of a REIT include
parking facilities. See Rev. Rul. 2004-24,
2004-10 I.R.B. 550, for guidance to
determine whether amounts received by a
REIT that provides parking facilities at its
rental real properties qualify as rents from
real property.
• Rent from personal property leased
under or with a lease of real property (but
only if the rent from the personal property
does not exceed 15% of the total rent for
the tax year charged for both the real and
personal property under such lease).
Figure the percentage of rents from
personal property by comparing the FMV
of the personal rental property to the FMV
of the total rental property. See section
856(d)(1) for details.
• Rent from a taxable REIT subsidiary
(TRS) either (a) if at least 90% of the

leased space of the property is leased to
persons other than TRSs of the REIT and
other than persons described in section
856(d)(2)(B) at rents comparable to the
rent paid by the other tenants of the REIT
for comparable space; or (b) for certain
lodging facilities or health care property
operated by an eligible independent
contractor. For more information, including
definitions and additional requirements,
see sections 856(d)(8) and 856(d)(9).
Also, see Rev. Proc. 2003-66, 2003-33
I.R.B. 364 for the special rules on rents
paid to a REIT by certain joint ventures
that include a TRS.
See section 856(d)(2) for amounts
excluded from “rents from real property.”
Line 4. Other gross rents. Enter the
gross amount received for renting property
not included on line 3.
Line 5. Capital gain net income. Every
sale or exchange of a capital asset must
be reported on Schedule D (Form 1120),
Capital Gains and Losses, even if there is
no gain or loss.
Line 7. Other income. Enter any other
taxable income not reported on lines 1
through 6, except amounts that must be
reported in Part II or IV.
Enter amounts included in income
under the section 951A GILTI provisions.
See Form 8992, Part II, line 5, and the
Instructions for Form 8992. Also, consider
the applicability of section 951A with
respect to controlled foreign corporations
owned by domestic partnerships in which
the REIT has an interest. If the REIT also
has a Form 5471 reporting requirement,
attach the form.
List the type and amount of income on
an attached schedule. If the REIT has only
one item of other income, describe it in
parentheses on line 7. Examples of other
income to report on line 7 are:
• Amounts received or accrued as
consideration for entering into agreements
to make real property loans or to purchase
or lease real property.
• Recoveries of bad debts deducted in
prior years under the specific charge-off
method.
• Refunds of taxes deducted in prior
years if they reduced income subject to
tax in the year deducted (see section 111).
Do not offset current year taxes against
tax refunds.
• Any deduction previously taken under
section 179A that is subject to recapture.
The REIT must recapture the benefit of
any allowable deduction for clean-fuel
vehicle property (or clean-fuel vehicle
refueling property), if the property later
ceases to qualify. See Regulations section
1.179A-1 for details.
• Ordinary income from trade or business
activities of a partnership (from
Schedule K-1 (Form 1065)). Do not offset

ordinary losses against ordinary income.
Instead, include the losses on line 18,
Form 1120-REIT. Show the partnership's
name, address, and EIN on a separate
statement attached to this return. If the
amount entered is from more than one
partnership, identify the amount from each
partnership.
• Any net positive section 481(a)
adjustment. See Section 481(a)
adjustment, earlier.
• Income from cancellation of debt (COD)
from the repurchase of a debt instrument
for less than its adjusted issue price.
• If you have a section 965(a) inclusion
for the tax year, enter the net amount (the
section 965(a) inclusion less the
corresponding section 965(c) deduction)
on this line 7. You must also complete and
attach Form 965, Inclusion of Deferred
Foreign Income Upon Transition to
Participation Exemption System,
applicable schedules, and Form 965-B.
• An election can be made to take
section 965(a) inclusions and
corresponding section 965(c) deductions
into account over 8 years. For more
information, see Form 965 and related
instructions.

Deductions
Limitations on Deductions
Section 263A uniform capitalization
rules. The uniform capitalization rules of
section 263A generally require REITs to
capitalize certain costs to inventory or
other property.
REIT's subject to the section 263A
uniform capitalization rules are required to
capitalize:
1. Direct costs of assets produced or
acquired for resale, and
2. Certain indirect costs (including
taxes) that are properly allocable to
property produced or property acquired for
resale.
A REIT cannot deduct the costs
required to be capitalized under section
263A until it sells, uses, or otherwise
disposes of the property (to which the
costs relate). The REIT recovers these
costs through depreciation, amortization,
or costs of goods sold.
For more details, including exemptions
to the uniform capitalization rules, see
Pub. 538. See section 263A(i) for
exemption for certain small businesses.
For non-small business taxpayers, see
Regulations sections 1.263A-1 through
1.263A-3. See section 263A(d),
Regulations section 1.263A-4, and Pub.
225 for rules for property produced in a
farming business.
Transactions between related taxpayers. Generally, an accrual basis taxpayer
may only deduct business expenses and
-9-

interest owed to a related party in the year
the payment is included in the income of
the related party. See sections 163(e)(3)
and 267 for limitations on deductions for
unpaid interest and expenses.
Business interest. Business interest
expense is limited for tax years beginning
after 2017. See section 163(j) for
limitations on deductions for business
interest. Also, see Schedule K, Question
11, later.
Golden parachute payments. A portion
of the payments made by a REIT to key
personnel that exceeds their usual
compensation may not be deductible. This
occurs when the REIT has an agreement
(golden parachute) with these key
employees to pay them these excessive
amounts if control of the REIT changes.
See section 280G and Regulations
section 1.280G-1. Also see the
instructions for line 9, later.
Business start-up and organizational
costs. A REIT can elect to deduct a
limited amount of start-up and
organizational costs it paid or incurred.
Any remaining costs must generally be
amortized over a 180-month period. See
sections 195 and 248 and the related
regulations.
Time for making an election. The
REIT generally elects to deduct start-up or
organizational costs by claiming the
deduction on its income tax return filed by
the due date (including extensions) for the
tax year in which the active trade or
business begins. However, for start-up or
organizational costs paid or incurred
before September 9, 2008, the REIT may
be required to attach a statement to its
return to elect to deduct such costs.
For more details including special rules
for costs paid or incurred before
September 9, 2008, see the Instructions
for Form 4562. Also, see Pub. 535,
Business Expenses.
If the REIT timely filed its return for the
year without making an election, it can still
make an election by filing an amended
return within 6 months of the due date of
the return (excluding extensions). Clearly
indicate the election on the amended
return and write “Filed pursuant to section
301.9100-2” at the top of the amended
return. File the amended return at the
same address the REIT filed its original
return. The election applies when figuring
taxable income for the current tax year
and all subsequent years.
Note. The REIT can choose to forgo the
elections above by clearly electing to
capitalize its start-up or organizational
costs on an income tax return filed by the
due date (including extensions) for the tax
year in which the active trade or business
begins.

Report the deductible amount of such
costs and any amortization on line 18. For
amortization that begins during the current
tax year, complete and attach Form 4562.
Passive activity and at-risk limitations.
Loss and credit limitations under sections
465 and 469 apply to REITs that are
closely held as described in sections
465(a)(1)(B) and 469(j)(1). REITs subject
to sections 465 and 469 must complete
Forms 6198 and 8810 to compute
allowable losses or credits. Before
completing Form 8810, see Temporary
Regulations section 1.163-8T, for rules on
allocating interest expense among
activities.
Reducing certain expenses for which
credits are allowable. For each credit
listed below, the REIT must reduce the
otherwise allowable deductions for
expenses used to figure the credit by the
amount of the current year credit. Do not
reduce the amount of the allowable
deduction for any portion of the credit that
was passed through to the REIT from a
pass-through entity on Schedule K-1.
• Employment credits. See the
instructions for line 10, later.
• Disabled access credit (Form 8826).
• Credit for employer social security and
Medicare taxes paid on certain employee
tips (Form 8846).
• Credit for small employer pension plan
start-up costs (Form 8881).
• Credit for employer-provided childcare
facilities and services (Form 8882).
If the REIT is eligible to claim any of
these credits, figure each current year
credit before figuring the deduction for
expenses on which the credit is based. If
the REIT capitalized any costs on which it
figured the credit, reduce the amount
capitalized by the credit attributable to
these costs.
See the instructions for the form used
to figure the applicable credit.
Line 9. Compensation of officers.
Enter the deductible officer's
compensation on line 9. Do not include
compensation deductible elsewhere on
the return, such as elective contributions
to a section 401(k) cash or deferred
arrangement, or amounts contributed
under a salary reduction SEP agreement
or a SIMPLE IRA plan.
If the REIT's total receipts are $500,000
or more, complete and attach Form
1125-E. Total receipts are figured by
adding:
• Line 8, Part I;
• Net capital gain from line 10, Part III;
and
• Line 9a, Form 2438.
Enter on line 9 the amount from Form
1125-E, line 4.

Line 10. Salaries and wages. Enter the
total salaries and wages paid for the tax
year, reduced by the amount claimed on:
• Form 5884, Work Opportunity Credit;
• Form 8844, Empowerment Zone
Employment Credit;
• Form 8845, Indian Employment Credit;
• Form 8932, Credit for Employer
Differential Wage Payments; and
• Form 8994, Employer Credit for Paid
Family and Medical Leave.
See the instructions for these forms for
more information.
Do not include salaries and wages
deductible elsewhere on the return, such
as amounts included in officer's
compensation, elective contributions to a
section 401(k) cash or deferred
arrangement, or amounts contributed
under a salary reduction SEP agreement
or a SIMPLE IRA plan.
If the REIT provided taxable fringe
benefits to its employees, such as
CAUTION personal use of a car, do not
deduct as wages the amounts allocated
for depreciation and other expenses
claimed on lines 16 and 18.

!

Line 11. Repairs and maintenance.
Enter the cost of incidental repairs and
maintenance, such as labor and supplies,
that do not add to the value of the property
or appreciably prolong its life. New
buildings, machinery, or permanent
improvements that increase the value of
the property are not deductible as repairs
and maintenance expenses. These
expenses must be capitalized and
depreciated or amortized. However,
amounts paid for routine maintenance on
property, including buildings, may be
deductible. See Regulations section
1.263(a)-3(i).
Line 12. Bad debts. Enter the total debts
that became worthless in whole or in part
during the tax year. A cash basis taxpayer
may not claim a bad debt deduction
unless the amount was previously
included in income.
Line 13. Rents. If the REIT rented or
leased a vehicle, enter the total annual
rent or lease expense paid or incurred
during the year. Also, complete Part V of
Form 4562, Depreciation and
Amortization. If the REIT leased a vehicle
for a term of 30 days or more, the
deduction for the vehicle lease expense
may have to be reduced by an amount
called the inclusion amount.
The REIT may have an inclusion
amount if:

-10-

And the
vehicle's
FMV on the
first day of
the lease
exceeded:

The lease term began:
Cars (excluding trucks and vans):
After 12/31/17 but before
1/1/20 . . . . . . . . . .

. . . .

$50,000

After 12/31/12 but before
1/1/18 . . . . . . . . . .

. . . .

$19,000

After 12/31/07 but before
1/1/13 . . . . . . . . . .

. . . .

$18,500

After 12/31/17 but before
1/1/20 . . . . . . . . . .

. . . .

$50,000

After 12/31/13 but before
1/1/18 . . . . . . . . . .

. . . .

$19,500

After 12/31/09 but before
1/1/14 . . . . . . . . . .

. . . .

$19,000

After 12/31/08 but before
1/1/10 . . . . . . . . . .

. . . .

$18,500

After 12/31/07 but before
1/1/09 . . . . . . . . . .

. . . .

$19,000

Trucks and vans:

See Pub. 463, Travel, Gift, and Car Expenses, for
instructions on figuring the inclusion amount. The
inclusion amount for lease terms beginning in 2020 will
be published in the Internal Revenue Bulletin in early
2020.

Line 14. Taxes and licenses. Enter
taxes paid or incurred during the tax year,
but do not include the following.
• Federal income taxes (except for the
tax imposed on net recognized built-in
gain allocable to ordinary income).
• Foreign or U.S. possession income
taxes if a tax credit is claimed (however,
see the Instructions for Form 5735 for
special rules for possession income
taxes).
• Taxes not imposed on the REIT.
• Taxes, including state or local sales
taxes, that are paid or incurred in
connection with an acquisition or
disposition of property (these taxes must
be treated as a part of the cost of the
acquired property or, in the case of a
disposition, as a reduction in the amount
realized on the disposition).
• Taxes assessed against local benefits
that increase the value of the property
assessed (such as for paving, etc.).
• Taxes deducted elsewhere on the
return.
• Excise taxes imposed under section
4981 on undistributed REIT income.
See section 164(d) for information on
apportionment of taxes on real property
between the seller and the purchaser.
Line 15. Interest. The deduction for
interest is limited when the REIT is a
policyholder or beneficiary with respect to
a life insurance, endowment, or annuity
contract issued after June 8, 1997. For
details, see section 264(f). Attach a

statement showing the computation of the
deduction.
The REIT must make an interest
allocation if the proceeds of a loan were
used for more than one purpose. For
example, the loan proceeds were used to
purchase a financial investment and
acquire an interest in a passive activity.
See Temporary Regulations section
1.163-8T for the interest allocation rules.
The following interest is not deductible.
• Interest on indebtedness incurred or
continued to purchase or carry obligations
if the interest is wholly exempt from
income tax. See section 265(b) for special
rules and exceptions for financial
institutions. Also, see section 265(b)(7) for
a temporary de minimis safe-harbor
exception for certain financial institutions
for tax-exempt bonds issued in 2009 and
2010.
• For cash basis taxpayers, prepaid
interest allocable to years following the
current tax year (for example, a cash basis
calendar year taxpayer who in 2019
prepaid interest allocable to any period
after 2019 can deduct only the amount
allocable to 2019).
• Interest and carrying charges on
straddles. Generally, these amounts must
be capitalized. See section 263(g).
• Interest paid or incurred on any portion
of an underpayment of tax that is
attributable to an understatement arising
from an undisclosed listed transaction or
an undisclosed reportable avoidance
transaction (other than a listed
transaction) entered into in tax years
beginning after October 22, 2004.
Limitation on deduction. Business
interest expense is limited to the sum of
business interest income, 30% of the
adjusted taxable income, and floor plan
financing interest. Business interest
expense includes any interest paid or
accrued on indebtedness properly
allocable to a trade or business.
A taxpayer, other than a tax shelter,
that meets the gross receipts test is not
required to limit business interest expense
under section 163(j). A taxpayer meets the
gross receipts test if the taxpayer has
average annual gross receipts of $26
million or less for the 3 prior tax years.
Gross receipts generally include the
aggregate gross receipts from all persons
treated as a single employer such as a
controlled group of corporations,
commonly controlled partnerships or
proprietorships, and affiliated service
groups.
If the corporation fails to meet the gross
receipts test, Form 8990, Limitation on
Business Interest Expense Under Section
163(j), is generally required. An electing
real property trade or business is
excepted from the interest expense
limitation of section 163(j). See section

163(j)(7). Also, see questions on
Schedule K, Line 10, for business interest
expense elections and on Schedule K,
Line 11, regarding conditions for filing
Form 8990.
Special rules apply to:
• Foregone interest on certain
below-market-rate loans (see section
7872).
• Original issue discount (OID) on certain
high-yield discount obligations. See
section 163(e)(5) to determine the amount
of the deduction for OID that is deferred
and the amount that is disallowed on a
high-yield discount obligation. The rules
under section 163(e)(5) do not apply to
certain high-yield discount obligations
issued after August 31, 2008, and before
January 1, 2011. See section 163(e)(5)
(F). Also, see Notice 2010-11, 2010-4
I.R.B. 326.

!

Interest expense cannot be used
to offset interest income.

CAUTION

Line 16. Depreciation. Include on line 16
depreciation and the cost of certain
property that the REIT elected to expense
under section 179. See Form 4562 and
the related instructions to figure the
amount to enter on this line.
Line 18. Other deductions. Attach a
statement listing, by type and amount all
allowable deductions that are not
deductible elsewhere on the return. Enter
the total on line 18. Include amortization
and organization expenses. Generally, a
deduction may not be taken for any
amount that is allocable to a class of
exempt income. See section 265(b) for
exceptions.
Examples of other deductions include
the following:
• Amortization (see Form 4562).
• Certain business start-up and
organizational costs that the REIT elects
to deduct.
• Depletion. Attach Form T (Timber),
Forest Activities Schedule, if a deduction
for depletion of timber is taken.
• Reforestation costs. The REIT can elect
to deduct up to $10,000 of qualified
reforestation expenses for each qualifying
timber property. The REIT can elect to
amortize over 84 months any amount not
deducted.
• Insurance premiums.
• Legal and professional fees.
• Supplies used and consumed in the
business.
• Utilities.
• Ordinary losses from trade or business
activities of a partnership (from
Schedule K-1 (Form 1065)). Do not offset
ordinary income against ordinary losses.
Instead, include the income on line 7.
Show the partnership's name, address,
and EIN on a separate statement attached
-11-

to this return. If the amount is from more
than one partnership, identify the amount
from each partnership.
• Any net negative section 481(a)
adjustment. See Section 481(a)
adjustment, earlier.
• Any applicable deduction under section
179D for costs of energy efficient
commercial building property.
Do not deduct expenses such as the
following.
• Fines or penalties paid to a government
for violating any law. However, exceptions
apply for certain amounts paid or incurred
after December 21, 2017. See section
162(f), as amended by P.L. 115-97,
section 13306 (discussed later).
• Lobbying expenses. However, see
exceptions (discussed later).
• Amounts paid or incurred after
December 22, 2017, for any settlement,
payout, or attorney fees related to sexual
harassment or sexual abuse, if such
payments are subject to a nondisclosure
agreement. See new section 162(q).
Charitable contributions. Enter
contributions or gifts actually paid within
the tax year to or for the use of charitable
and governmental organizations
described in section 170(c) and any
unused contributions carried over from
prior years.
REITs reporting taxable income on the
accrual method may elect to treat as paid
during the tax year any deductible
contributions paid by the due date of the
REIT’s tax return (not including
extensions) if the contributions were
authorized by the board of directors during
the tax year. Attach a declaration to the
return stating that the resolution
authorizing the contributions was adopted
by the board of directors during the tax
year. The declaration must include the
date the resolution was adopted. See
Regulations section 1.170(a)(2)(B).
Limitation on deduction. The total
amount claimed may not be more than
10% of taxable income (the sum of Part I,
line 22; Part II, line 5; Part IV, line 3; and
Form 2438, line 11) computed without
regard to the following.
• Any deduction for contributions.
• The limitation under section 249 on the
deduction for bond premium.
• Any net operating loss (NOL) carryback
to the tax year under section 172.
• Any capital loss carryback to the tax
year under section 1212(a)(1).
Carryover. Charitable contributions
that exceed the 10% limitation cannot be
deducted for the tax year but may be
carried over to the next 5 tax years.
Special rules apply if the REIT has an
NOL carryover to the tax year. In figuring
the charitable contributions deduction for
the tax year, the 10% limit is applied using

the taxable income after taking into
account any deduction for the NOL.
To figure the amount of any remaining
NOL carryover to later years, taxable
income must be modified (see section
172(b)). To the extent that contributions
are used to reduce taxable income for this
purpose and increase an NOL carryover, a
contributions carryover is not allowed. See
section 170(d)(2)(B).
Temporary suspension of 10%
limitation for certain disaster-related
contributions. A corporation may elect
to deduct qualified cash contributions
without regard to the 10% taxable income
limit. Qualified contributions are any
charitable contributions that were made
after December 31, 2017, and before
February 19, 2020, to a qualified
charitable organization (other than certain
private foundations described in section
509(a)(3) or donor-advised funds
described in section 4966(d)(2). The
corporation must obtain contemporaneous
written acknowledgment (within the
meaning of section 170(f)(8)) from the
qualified charitable organization that the
contribution was used or is to be used for
disaster relief efforts.
The total amount of the contribution
claimed for disaster relief efforts cannot
exceed 100% of the excess of the
corporation’s taxable income (as
computed above substituting “100%” for
10%) over all other allowable charitable
contributions. Any excess qualified
contributions are carried over to the next 5
years.
Cash contributions. For contributions
of cash, check, or other monetary gifts
(regardless of the amount), the REIT must
maintain a bank record, or a receipt, letter,
or other written communication from the
donee organization indicating the name of
the organization, the date of the
contribution, and the amount of the
contribution.
Contributions of $250 or more. A
REIT can deduct a contribution of $250 or
more only if the REIT receives a written
acknowledgment from the donee
organization that shows the amount of
cash contributed, describes any property
contributed, and gives a description and a
good faith estimate of the value of any
goods or services provided in return for
the contribution, or states that no goods or
services were provided in return for the
contribution. The acknowledgment must
be obtained by the due date (including
extensions) of the REIT's return, or, if
earlier, the date the return is filed. Do not
attach the acknowledgment to the tax
return, but keep it with the REIT's records.
For more information on charitable
contributions, including substantiation and
recordkeeping requirements, see section

170 and the related regulations, and Pub.
526, Charitable Contributions. For special
rules that apply to corporations, see Pub.
542.
Pension, profit-sharing, etc., plans.
Include the deduction for contributions to
qualified pension, profit-sharing, or other
funded deferred compensation plans.
Employers who maintain such a plan must
generally file one of the forms listed below
unless exempt from filing under
regulations or other applicable guidance,
even if the plan is not a qualified plan
under the Internal Revenue Code. The
filing requirement applies even if the REIT
does not claim a deduction for the current
tax year. There are penalties for failure to
file these forms on time and for overstating
the pension plan deduction. See sections
6652(e) and 6662(f). Also, see the
instructions for the applicable forms.
Form 5500, Annual Return/Report of
Employee Benefit Plan.
Form 5500-SF, Short Form Annual
Return/Report of Small Employee Benefit
Plan, instead of Form 5500, generally if
under 100 participants at the beginning of
the plan year.
Note. Form 5500 and Form 5500-SF
must be filed electronically under the
computerized ERISA Filing Acceptance
System (EFAST2). For more information,
see the EFAST2 website at
www.efast.dol.gov.
Form 5500-EZ, Annual Return of
One-Participant (Owners/Partners and
Their Spouses) Retirement Plan or a
Foreign Plan. File this form for a plan that
only covers the owner (or the owner and
his or her spouse) or a foreign plan that is
required to file an annual return and does
not file the annual return electronically on
Form 5500-SF. See Instructions for Form
5500-EZ.
Travel, meals, and entertainment.
Subject to limitations and restrictions
discussed below, a REIT can deduct
ordinary and necessary travel, meals, and
non-entertainment expenses paid or
incurred in its trade or business.
Generally, entertainment expenses,
membership dues, and facilities used in
connection with these activities cannot be
deducted. In addition, no deduction is
generally allowed for qualified
transportation fringe benefits. Also,
special rules apply to deductions for gifts,
luxury water travel, and convention
expenses. See section 274, Pub. 463, and
Pub. 535 for more details.
Travel. A REIT cannot deduct travel
expenses of any individual accompanying
a corporate officer or employee, including
a spouse or dependent of the officer or
employee, unless:
-12-

• That individual is an employee of the
REIT, and
• His or her travel is for a bona fide
business purpose and would otherwise be
deductible by that individual.
Meals. Generally, the REIT can
deduct only 50% of the amount otherwise
allowable for non-entertainment related
meal expenses paid or incurred in its trade
or business. Meals not separately stated
from entertainment are generally not
deductible. In addition (subject to
exceptions under section 274(k)(2));
• Meals must not be lavish or
extravagant, and
• An employee of the REIT must be
present at the meal.
See section 274(n)(3) for a special rule
that applies to expenses for meals
consumed by individuals subject to the
hours of service limits of the Department
of Transportation.
Qualified transportation fringes
(QTFs). Generally, no deduction is
allowed under section 274(a)(4) for QTFs
provided by employers to their employees.
QTFs are defined in section 132(f)(1) and
include:
• Transportation in a commuter highway
vehicle between the employee’s residence
and place of employment,
• Any transit pass, and
• Qualified parking.
See section 274, Pub. 15-B, and Pub. 535
for details
Membership dues. The REIT can
deduct amounts paid or incurred for
membership dues in civic or public service
organizations, professional organizations
(such as bar and medical associations),
business leagues, trade associations,
chambers of commerce, boards of trade,
and real estate boards. However, no
deduction is allowed if a principal purpose
of the organization is to entertain or
provide entertainment facilities to
members or their guests. In addition,
REITs cannot deduct membership dues to
any club organized for business, pleasure,
recreation, or other social purpose. This
includes country clubs, golf and athletic
clubs, airline and hotel clubs, and clubs
operated to provide meals under
conditions favorable to business
discussion.
Entertainment facilities. The REIT
cannot deduct an expense paid or
incurred for a facility (such as a yacht or
hunting lodge) used for an activity usually
considered entertainment, amusement, or
recreation.
Amounts treated as compensation.
Generally, the REIT may be able to deduct
otherwise nondeductible meals, travel,
and entertainment expenses if the
amounts are treated as compensation to

the recipient and reported on Form W-2
for an employee or on Form 1099-MISC
for an independent contractor.
However, if the recipient is an officer,
director, beneficial owner (directly or
indirectly), or other “specified individual”
(as defined in section 274(e)(2)(B) and
Regulations section 1.274-9(b)), special
rules apply. See section 274(e)(2) and
Regulations sections 1.274-9 and
1.274-10.
Fines and penalties. Generally, no
deduction is allowed for fines and
penalties paid to a government or
specified nongovernmental entity for the
violation of any law except:
• Amounts that constitute restitution;
• Amounts paid to come into compliance
with the law;
• Amounts paid or incurred as the result
of certain court orders in which no
government or specified nongovernmental
agency is a party; and
• Amounts paid or incurred for taxes due.
No deduction is allowed for the amount
paid as restitution remediation of property,
or to come into compliance with the law
unless the amounts are established as
such and specifically identified in the
settlement agreement or court order. Also,
any amount paid or incurred as
reimbursement to the government for the
costs of any investigation or litigation are
not eligible for the exceptions and are
nondeductible. See section 162(f).
Lobbying expenses. Generally,
lobbying expenses are not deductible.
These expenses include:
• Amounts paid or incurred in connection
with influencing federal, state, or local
legislation; or
• Amounts paid or incurred in connection
with any communication with certain
federal executive branch officials in an
attempt to influence the official actions or
positions of the officials. See Regulations
section 1.162-29 for the definition of
“influencing legislation.”
Dues and other similar amounts paid to
certain tax-exempt organizations may not
be deductible. If certain in-house lobbying
expenditures do not exceed $2,000, they
are deductible.
Line 20. Taxable income before NOL
deduction, total deduction for dividends paid, and section 857(b)(2)(E)
deduction. Generally, special at-risk
rules under section 465 apply to closely
held corporations engaged in any activity
as a trade or business or for the
production of income. Those REITs that
are closely held may have to adjust the
amount on line 20.
The at-risk rules do not apply to:
• Holding real property placed in service
by the taxpayer before 1987;

• Equipment leasing under sections
465(c)(4), (5), and (6); or
• Any qualifying business of a qualified
REIT under section 465(c)(7).
However, the at-risk rules do apply to
the holding of mineral property.
If the at-risk rules apply, adjust the
amount on this line for any section 465(d)
losses. These losses are limited to the
amount for which the REIT is at risk for
each separate activity at the close of the
tax year. If the REIT is involved in one or
more activities, any of which incurs a loss
for the year, report the losses for each
activity separately. Attach Form 6198,
At-Risk Limitations, showing the amount at
risk and gross income and deductions for
the activities with the losses.
If the REIT sells or otherwise disposes
of an asset or its interest (either total or
partial) in an activity to which the at-risk
rules apply, determine the net profit or loss
from the activity by combining the gain or
loss on the sale or disposition with the
profit or loss from the activity. If the REIT
has a net loss, it may be limited because
of the at-risk rules.
Treat any loss from an activity not
allowed for the tax year as a deduction
allocable to the activity in the next tax
year.
Line 21a. Net operating loss deduction. A REIT can use the net operating
loss (NOL) incurred in one tax year to
reduce its taxable income in another tax
year.
Generally, a REIT may carry an NOL
over indefinitely to tax years following the
year of loss. REITs are not permitted to
carry back an NOL to any year preceding
the year of the loss.
Enter the total NOL carryovers from
other tax years, but do not enter more than
the REIT's taxable income. The REIT's
taxable income for purposes of the NOL
deduction is taxable income (line 20)
reduced by the dividends paid deduction
(line 21b) and the section 857(b)(2)(E)
deduction (line 21c). If this amount is less
than zero, an NOL deduction cannot be
taken for the tax year. Attach a statement
showing the computation of the NOL
deduction. Also, complete item 9 on
Schedule K.
If capital gain dividends are paid during
any tax year, the amount of the net capital
gain for such tax year (to the extent of the
capital gain dividends) is excluded in
determining:
1. The NOL for the tax year; and
2. The amount of the NOL of any prior
tax year that may be carried over to any
succeeding tax year.
Carryover rules. The NOL for the
current year is computed using the REIT's
taxable income before it is reduced by the
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dividends paid deduction. After the REIT
applies the NOL to the first tax year to
which it may be carried, the taxable
income of that year must be modified (as
described by section 172(b) and the
modified rules for REITs in section 172(d)
(6)) to determine how much of the
remaining loss may be carried to other
years. Although the current year NOL is
computed without regard to the dividends
paid deduction, an NOL carryover from a
prior year is applied to the current year
using taxable income after it is reduced by
the dividends paid deduction. The NOL
amounts carried forward by the REIT are
not reduced by subsequent year dividends
paid deductions. See Example 1 in
Regulations section 1.172-5(a)(4).
Note. Generally, NOL deductions arising
in tax years beginning after 2017 are
limited to 80% of taxable income
(determined without regard to the NOL).
Special NOL rules apply when:
• An ownership change (described in
section 382(g)) occurs, the amount of the
taxable income of a loss REIT that may be
offset by the pre-change NOL carryovers
is limited (see section 382 and the related
regulations). A loss REIT must file an
information statement with its income tax
return for each tax year that certain
ownership shifts occur (see Temporary
Regulations section 1.382-2T(a)(2)(ii) for
details). See Regulations section
1.382-6(b) for details on how to make the
closing-of-the-books election.
• A REIT acquires control of another
REIT (or acquires its assets in a
reorganization), the amount of
pre-acquisition losses that may offset
recognized built-in gains is limited (see
section 384).
• A REIT may elect under section 965(n)
to reduce the amount of the NOL for a tax
year determined under section 172 and
the amount of taxable income reduced by
NOL carryovers to such tax year. The
reduction amount is equal to the amount
of the section 965(a) inclusion (net of the
section 965(c) deduction) plus, in the case
of a domestic corporation that claims a
credit for deemed paid foreign taxes, the
section 78 gross-up with respect to the
foreign taxes deemed paid with respect to
the section 965(a) inclusion. If, as a result
of an election under section 965(n), the
amount of the NOL for the tax year is
reduced, the reduction amount is included
in other income on line 7. If, as a result of
an election under section 965(n), the
taxable income reduced by NOL
carryovers is reduced, the NOL deduction
on line 21a is reduced by the reduction
amount. See section 965(n) for more
information.

Tax and Payments
Line 24. If an election to pay the section
965 net tax liability in installments has
been made under section 965(h),
complete and attach Form 965-B. Enter
the current year section 965 installment
payment (from Form 965-B, Part II,
column (k), line 3). If an election under
section 965(h) has not been made, enter
zero on line 24.
Line 25b. Estimated tax payments.
Enter any estimated tax payments the
REIT made for the tax year.
Line 25f(1). Enter the credit (from Form
2439) for the REIT's share of the tax paid
by a RIC or another REIT on undistributed
long-term capital gains included in the
REIT's income. Attach Form 2439 to Form
1120-REIT.
Line 25f(2). Enter the credit from Form
4136, Credit for Federal Tax Paid on
Fuels, if the REIT qualifies to claim this
credit. Attach Form 4136 to Form
1120-REIT.
Line 25g. Refundable Credit From
Form 8827. If the REIT elected to claim
certain unused minimum tax credits
instead of claiming any additional
first-year special depreciation allowance
for eligible property, see the Instructions
for Form 8827. Enter on line 25g the
amount from line 5c of Form 8827, if
applicable.
The REIT must use the refundable
credit from Form 8827 to reduce
CAUTION any built-in gains tax derived from
property that it owned when it was a C
corporation, before the credit can be used
to reduce the REIT's income tax. See the
instructions for line h of the Built-in Gains
Tax Worksheet Instructions, later.

!

Line 25h. If an election to pay the section
965 net tax liability in installments has
been made under section 965(h),
complete and attach Form 965-B. Enter
the amount of current year net section 965
tax liability (from Form 965-B, Part I,
column (d), line 3). If an election under
section 965(h) has not been made, enter
zero on line 25h.
Line 25i. Add the amounts on lines 25d
through 25h and enter the total on line 25i.
Backup withholding. If the REIT had
income tax withheld from any payments it
received because, for example, it failed to
give the payer its correct EIN, include the
amount withheld in the total for line 25i.
Enter the amount withheld and the words
“Backup Withholding” in the blank space
above line 25i.
Line 26. Estimated tax penalty. A REIT
that does not make estimated tax
payments when due may be subject to an
underpayment penalty for the period of

underpayment. Generally, a REIT is
subject to the penalty if its tax liability is
$500 or more and it did not timely pay the
smaller of:
• Its total tax for the current tax year, or
• Its prior year's tax.
Use Form 2220, Underpayment of
Estimated Tax by Corporations, to
determine whether the REIT owes a
penalty and to figure the amount of the
penalty. Generally, the REIT does not
have to file this form because the IRS can
figure the amount of any penalty and bill
the REIT for it. However, even if it does
not owe the penalty, the REIT must
complete and attach Form 2220 if the
annualized income or adjusted seasonal
installment method is used, or the REIT is
a large corporation computing its first
required installment based on the prior
year's tax. See the Instructions for Form
2220 for the definition of a “large
corporation.”
If Form 2220 is attached, check the box
on this line and enter the amount of any
penalty.
Line 27. Tax due. If the REIT cannot pay
the full amount of tax owed, it can apply
for an installment agreement online. The
REIT can apply for an installment
agreement online if:
• It cannot pay the full amount shown on
line 27,
• The total amount owed is $25,000 or
less (including tax, penalties, and
interest), and
• The REIT can pay the liability in full in
24 months.
To apply using the Online Payment
Agreement Application, go to IRS.gov/
OPA.
Under an installment agreement, the
REIT can pay what it owes in monthly
installments. There are certain conditions
that must be met to enter into and
maintain an installment agreement, such
as paying the liability within 72 months
and making all required deposits and
timely filing tax returns during the length of
the agreement.
If the installment agreement is
accepted, the REIT will be charged a fee
and it will be subject to penalties and
interest on the amount of tax not paid by
the due date of the return.

Part II—Tax on Net Income
From Foreclosure
Property

Complete Part II only if the gross income,
gains, losses, and deductions from
foreclosure property (defined in section
856(e)) result in net income. If an overall
net loss results, report the gross income,
gains, losses, and deductions from

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foreclosure property on the appropriate
lines of Part I.
Property may be treated as foreclosure
property only if it meets the requirements
of section 856(e) and the REIT elects to
treat the property as foreclosure property
in the year it was acquired. The property
continues to be foreclosure property until
the close of the 3rd tax year following the
tax year in which the REIT acquired it. For
more information, see section 856(e).
However, if the foreclosure property is
qualified health care property, it will cease
to be foreclosure property as of the close
of the 2nd year following the tax year the
REIT acquired it (although the REIT may
request one or more extensions to this
2-year grace period not to extend beyond
the 6th year). See section 856(e)(6) for
details.
This election must be made by the due
date for filing Form 1120-REIT (including
extensions). To make the election, attach
a statement that:
• Indicates that the election under section
856(e) is being made;
• Identifies the property to which the
election applies;
• Includes the name, address, and EIN of
the REIT, the date the property was
acquired, and a brief description of how
the property was acquired (including the
name of the person from whom the
property was acquired); and
• Gives a description of the lease or debt
with respect to which default occurred or
was imminent.
The REIT can revoke the election by
filing a revocation on or before the due
date (including extensions) for filing Form
1120-REIT. See section 856(e) for more
details.
Line 2. Gross income from foreclosure
property. Do not include income that
qualifies under the REIT's 75% gross
income test under section 856(c)(3)(A),
(B), (C), (D), (E), or (G). These amounts
must be reported in Part I.
Line 4. Deductions. Deduct only those
expenses that have a proximate and
primary relationship to earning the income
shown on line 3. This includes:
• Depreciation on foreclosure property;
• Interest paid or accrued on debt of the
REIT that is attributable to the carrying of
the property;
• Real estate taxes; and
• Fees charged by an independent
contractor to manage such property.
Do not deduct general overhead and
administrative expenses in Part II.

Part III—Tax for Failure To
Meet Certain
Source-of-Income
Requirements

Section 856(c)(6) provides REITs with a
relief provision if they have failed to satisfy
the source-of-income requirements of
sections 856(c)(2) and 856(c)(3). If
section 856(c)(6) applies to a REIT for any
taxable year, a tax is imposed on the REIT
under section 857(b)(5).
All REITs must complete lines 1a
through 8 of Part III to determine whether
they are subject to the tax imposed under
section 857(b)(5). If line 8 is zero, the tax
does not apply, and the REIT does not
have to complete the rest of Part III.
However, if line 8 is greater than zero, the
REIT is subject to this tax, and must
complete the rest of Part III to determine
the amount of tax.
If a REIT reports passive foreign
exchange gain on line 2b or real estate
foreign exchange gain on line 5b, and any
part of such gain is characterized as such
by a determination of the Secretary under
section 856(n)(3)(C) or 856(n)(2)(C), the
REIT must attach a copy of this
determination to its return. Similarly, if a
REIT reports income that is excluded from
section 856(c)(2) pursuant to a
determination of the Secretary under
section 856(c)(5)(J)(i) on line 2c or
excluded from section 856(c)(3) pursuant
to a determination of the Secretary under
section 856(c)(5)(J)(i) on line 5c, the REIT
must attach a copy of this determination
allowing for such exclusion to its return.
Additionally, if a REIT reports income that
is excluded from section 856(c)(2) and (c)
(3) pursuant to section 965(m)(1), report
that amount on lines 2c and 5c of Part III
along with any amounts excluded
pursuant to section 856(c)(5)(J)(i). The
REIT must attach Forms 965 and 965-B,
as applicable, to its return.
A REIT that has failed the
source-of-income requirements of
sections 856(c)(2) and 856(c)(3) may
avoid loss of its REIT status as a result of
the failure if, following identification of its
failure to meet the source-of-income
requirements, the REIT sets forth a
description of each item of its gross
income described in sections 856(c)(2)
and 856(c)(3) on an attached schedule. In
addition, its failure to meet the
source-of-income requirements must be
due to reasonable cause and not due to
willful neglect.
For information on the relief provisions
under sections 856(c)(7) and 856(g)(5),
see the instructions for Schedule J, line 2f.

Part IV—Tax on Net
Income From Prohibited
Transactions

Section 857(b)(6) imposes a tax equal to
100% of the net income derived from
prohibited transactions. The 100% tax is
imposed to prevent a REIT from retaining
any profit from ordinary retailing activities
such as sales to customers of
condominium units or subdivided lots in a
development tract.

Line 1. Gain from sale or other disposition of property. Include only gain from
the sale or other disposition of property
described in section 1221(a)(1) that is not
foreclosure property and that does not
qualify as an exception. See section
857(b)(6)(C) for information on certain
sales that do not qualify as prohibited
transactions. See section 856(j) for a
special rule regarding a shared
appreciation mortgage. Exceptions apply
for certain sales of timber property by a
timber REIT. See section 857(b)(6)(D).
Do not net losses from prohibited
transactions against gains in determining
the amount to enter on line 1. Enter losses
from prohibited transactions on the
appropriate line in Part I.
Line 2. Deductions. Deduct only those
expenses that have a proximate and
primary relationship to the earning of the
income shown on line 1. Do not deduct
general overhead and administrative
expenses in Part IV.

Schedule A—Deduction
for Dividends Paid
Lines 1 through 5. Section 561 (taking
into account sections 857(b)(8), 857(d)(3)
(B), and 858(a)) determines the deduction
for dividends paid.
Line 3. Dividends declared in October,
November, or December and payable to
shareholders of record in October,
November, or December are treated by
the REIT as paid on December 31 of that
calendar year. The REIT is then eligible for
the deduction for dividends paid for the
year the dividends are declared even
though they are not actually paid until
January of the following calendar year.
If the REIT declared dividends in any of
those months and actually paid them in
January, as discussed above, enter on
line 3 those dividends not already included
on lines 1, 2, and 4 of Schedule A.
Line 7. If, for any tax year the REIT has
net income from foreclosure property (as
defined in section 857(b)(4)(B)), the
deduction for dividends paid to be entered
on line 6 (and on line 21b, page 1) is

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determined by multiplying the amount on
line 5 by the following fraction.
REIT taxable income (determined without regard
to the deduction for dividends paid)
REIT taxable income (determined without regard
to the deduction for dividends paid) +
(Net income from foreclosure property minus
the tax on net income from foreclosure property)

Schedule J—Tax
Computation
Line 1

A member of a controlled group must
check the box on line 1 and complete and
attach Schedule O (Form 1120). See
Schedule O (Form 1120) and its
instructions for more information.

Line 2a—Tax on REIT Taxable
Income

Most REITs figure their tax by multiplying
taxable income by 21%. A member of a
controlled group must use Schedule O
(Form 1120) to figure its tax.

Line 2c

Taxes are imposed for the failure to meet
the requirements of the asset test and/or
gross income test. To qualify for relief from
the failure to meet these requirements,
attach an explanation of why the REIT
failed to meet the asset test and/or gross
income test. Attach supporting schedules
and a statement showing the computation
of the amount of tax. Also, include a
reason why the failure was due to
reasonable cause and not willful neglect.
See sections 856(c)(2), 856(c)(3), and
856(c)(4).
The statement for reasonable cause
should be attached to Form 1120-REIT at
the time it is filed.

Line 2e

Enter the amount of the 100% REIT tax
imposed on the following:
• Income of a REIT for services provided
to the REIT's tenants that is improperly
included in rents from real property
reported by the REIT instead of being
reported by the TRS (see section 857(b)
(7)(B));
• Deductions that are improperly
allocated between the REIT and its TRS
(see section 857(b)(7)(C));
• Interest deductions of a TRS to the
extent that interest payments to its REIT
are in excess of a rate that is commercially
reasonable (see section 857(b)(7)(D));
and
• Gross income of a TRS of a REIT
attributable to services provided to, or on
behalf of, the REIT (less the deductions
properly allocable thereto) that is

improperly allocated between the REIT
and the TRS (see section 857(d)(7)(E)).

specified schedule for the quarter in which
the failure occurred by 21%.

See section 857(b)(7) for details and
exceptions.

Note. There is no tax imposed and you
are not required to attach a schedule of
assets to Form 1120-REIT for the de
minimus relief provision under section
856(c)(7)(B).
Under section 856(c)(7)(B), a REIT
may avoid loss of its REIT status as a
result of certain failures to meet the asset
test requirements of section 856(c)(4)(B)
(iii) if:
• Following its identification of the failure,
the REIT disposes of assets within 6
months after the last day of the quarter in
which the REIT's identification of the
failure occurred (or such time period
prescribed by the Secretary and in the
manner prescribed by the Secretary), or
• The requirements of the asset test of
section 856(c)(4) are otherwise met within
the specified time period.

Line 2f—Taxes Imposed Under
Section 856(c)(7) and Section
856(g)(5)

Enter the taxes imposed for the following
relief provisions.
• Section 856(c)(7) relating to failures to
meet the requirements of the asset test of
section 856(c)(4); and
• Section 856(g)(5) relating to failures to
meet certain requirements under sections
856 through 859 (other than sections
856(c)(2), 856(c)(3), and 856(c)(4)). See
sections 856(c)(7) and 856(g)(5) for
detailed information on the requirements
for these relief provisions and check the
appropriate box(es) for the tax(es)
imposed under them.
If a tax is imposed under section 856(c)
(7) or 856(g)(5), attach a statement
providing an explanation of why the REIT
failed to meet the requirements of the
asset test or other qualification
requirements under sections 856–859,
and a description of why such failure is
due to reasonable cause and not willful
neglect.
Failure to meet the asset test requirements of section 856(c)(4) (other than
de minimus failures). Under section
856(c)(7)(A), a REIT may avoid loss of its
REIT status as a result of certain failures
to meet the asset test requirements of
section 856(c)(4) if, following identification
of the failure, each of the following
requirements are met.
• The REIT sets forth a description of
each asset that causes the REIT to fail to
satisfy the requirements of the asset test
at the close of a quarter in a statement for
the quarter attached to its timely filed Form
1120-REIT;
• The failure must be due to reasonable
cause and not due to willful neglect; and
• The REIT either: (a) disposes of the
assets shown on the specified statement
within 6 months after the last day of the
quarter in which the REIT's identification of
the failure occurred (or such other time
and in the manner prescribed by
regulations); or (b) the requirements of the
asset test of section 856(c)(4) are
otherwise met within the specified time
period.
In addition, if section 856(c)(7)(A)
applies to a REIT for any tax year, the
REIT must pay a tax which is the greater
of:
• $50,000, or
• The amount determined (as prescribed
by regulations to be promulgated by the
Secretary) by multiplying the net income
generated by the assets described in the

Certain REIT qualification failures of
sections 856–859 (other than sections
856(c)(2), 856(c)(3), and 856(c)(4)).
Under section 856(g)(5), a REIT that fails
to meet the REIT qualification
requirements under sections 856–859,
except for section 856(c)(2), 856(c)(3),
and 856(c)(4), may avoid loss of its REIT
status if the failure is due to reasonable
cause and not due to willful neglect. In
addition, the REIT must pay (as
prescribed by regulations and in the same
manner as tax) a penalty of $50,000 for
each failure to satisfy a provision of
sections 856–859. See section 856(g)(5).

Line 2g—Income Tax
Deferred tax under section 1291. If the
REIT was a shareholder in a passive
foreign investment company (PFIC) and
received an excess distribution or
disposed of its investment in the PFIC
during the year, it must include the
increase in taxes due under section
1291(c)(2) in the total for line 2g. On the
dotted line to the left of line 2g, enter
“Section 1291” and the amount.
Do not include on line 2g any interest
due under section 1291(c)(3). Instead,
include the amount of interest owed on
Schedule J, line 6, Other taxes.
For more information on reporting the
deferred tax and interest, see the
Instructions for Form 8621.
Additional tax under section 197(f). A
REIT that elects to recognize gain and pay
tax on the sale of a section 197 intangible
under the related person exception to the
anti-churning rules should include any
additional tax due in the total for line 2g.
On the dotted line next to line 2g, enter
“Section 197” and the amount. See
section 197(f)(9)(B)(ii).

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Increase in tax attributable to partner’s
audit liability under section 6226. If the
REIT is filing Form 8978 to report
adjustments shown on Form 8986 they
received from partnerships which have
been audited and have elected to push
out imputed underpayments to their
partners, include any increase in taxes
due (positive amount) from Form 8978,
line 14, in the total for Form 1120-REIT,
Schedule J, line 2g. On the dotted line
next to line 2g, enter “Section 6226” and
the amount. Attach Form 8978. If Form
8978, line 14 shows a decrease in tax, see
the instructions for Schedule J, line 3d.

Line 3a—Foreign Tax Credit

To find out when a REIT can claim the
foreign tax credit for payment of income
tax to a foreign country or U.S.
possession, see Form 1118, Foreign Tax
Credit–Corporations.

Line 3b—Credit From Form
8834

Enter any qualified electric vehicle passive
activity credits from prior years allowed for
the current tax year from Form 8834,
Qualified Electric Vehicle Credit, line 7.

Line 3c—General Business
Credit

The REIT is required to file Form 3800,
General Business Credit, to claim most
business credits. For a list of allowable
credits, see Form 3800. Enter the
allowable credit from Part II, line 38, of
Form 3800, on line 3c. Also, see the
applicable credit form and its instructions.
See Form 3800 for a complete listing of
general business credits.

Line 3d—Other Credits

Include any allowable credits not reported
above, such as the Credit for Prior Year
Minimum Tax–Corporations (Form 8827).
Attach a statement that identifies the type
and amount for each credit. Attach the
applicable credit form to the return.
Bond credits from Form 8912. Enter
the allowable credits from Form 8912,
Credit to Holders of Tax Credit Bonds,
line 12.
Decrease attributable to partner’s audit liability under section 6226. If the
REIT is filing Form 8978 to report
adjustments shown on Form 8986 they
received from partnerships which have
been audited and have elected to push
out imputed underpayments to their
partners, include any decrease in taxes
due (negative amount) from Form 8978,
line 14, in total for Form 1120-REIT,
Schedule J, line 3d. Attach Form 8978. If
Form 8978, line 14, shows an increase in
tax, see the instructions for Schedule J,
line 2g.

Line 5—Personal Holding
Company Tax

A REIT is taxed as a personal holding
company under section 542 if:
• At least 60% of its adjusted ordinary
gross income for the tax year is personal
holding company income, and
• At any time during the last half of the tax
year more than 50% in value of its
outstanding stock is owned, directly or
indirectly, by five or fewer individuals.
See Schedule PH (Form 1120), U.S.
Personal Holding Company (PHC) Tax,
for definitions and details on how to figure
the tax.

Line 6—Other Taxes

Include any of the following taxes and
interest in the total on line 7. Check the
appropriate box(es) for the form, if any,
used to compute the total.

Recapture of investment credit. If the
REIT disposed of investment credit
property or changed its use before the end
of its useful life or recovery period, it may
owe a tax. See Form 4255, Recapture of
Investment Credit, for details.
Recapture of low-income housing
credit. If the REIT disposed of property
(or there was a reduction in the qualified
basis of the property) for which it took the
low-income housing credit, and the REIT
did not follow the procedures that would
have prevented recapture of the credit, it
may owe a tax. See Form 8611,
Recapture of Low-Income Housing Credit.
Interest due under the look-back methods. If the REIT used the look-back
method under section 460(b)(2) for certain
long-term contracts, use Form 8697,
Interest Computation Under the
Look-Back Method for Completed
Long-Term Contracts, to figure the interest
the REIT may have to include. See the
Instructions for Form 8697.
The REIT may also have to include
interest due under the look-back method
for property depreciated under the income
forecast method. Use Form 8866, Interest
Computation Under the Look-Back
Method for Property Depreciated Under
the Income Forecast Method, to figure any
interest due or to be refunded. See the
Instructions for Form 8866.
Other. Additional taxes and interest
amounts can be included in the total
entered on line 7. Check the box for
“Other” if the REIT includes any of the
taxes and interest discussed below. See
How to report for the line 7 instructions for
details on reporting these amounts on an
attached schedule.
• Recapture of Indian employment credit.
Generally, if an employer terminates the
employment of a qualified employee less
than 1 year after the date of initial

employment, any Indian employment
credit allowed for a prior tax year because
of wages paid or incurred to that employee
must be recaptured. For details, see Form
8845 and section 45A.
• Recapture of new markets credit (see
Form 8874 and Form 8874-B).
• Recapture of employer-provided
childcare facilities and services credit (see
Form 8882).
• Interest due on deferred tax attributable
to (a) installment sales of certain
timeshares and residential lots (section
453(l)(3)), and (b) certain nondealer
installment obligations (section 453A(c)).
• Interest due on deferred gain (section
1260(b)).
• Interest due under section 1291(c)(3).
See Form 8621 and the Instructions for
Form 8621.

year (see the instructions for line I of the
Built-in Gains Tax Worksheet, later). See
Regulations section 1.337(d)-7 for details.

Built-in Gains Tax

Built-in Gains Tax Worksheet
Instructions

If, on or after January 2, 2002, property of
a C corporation becomes property of a
REIT by either: (a) the qualification of the
C corporation as a REIT; or (b) the transfer
of such property to a REIT, then the REIT
will be subject to the built-in gains tax
under section 1374 unless the C
corporation elects deemed sale treatment
on the transferred property. Generally, if
the C corporation does not make this
election for tax years beginning in 2019,
the REIT must pay tax on the net
recognized built-in gain during the 5-year
period beginning on its first day as a REIT
or the day it acquired the property. Special
rules apply to conversion transactions on
or after June 7, 2019, as well as
conversion transactions with a related
section 355 distribution. See Regulations
section 1.337(d)-7 for details.
A REIT’s recognition period for
conversion transactions that occur on or
after August 8, 2016, and on or before
February 17, 2017, is the 10-year period
beginning on its first day as a REIT or the
day the REIT acquired the property, as
described in Temporary Regulations
section 1.337(d)-7(T)(b)(2)(iii), as in effect
on August 8, 2016. However, under the
provisions of final Regulations section
1.337(d)-7(g)(2)(iii), a REIT may choose to
apply a 5-year recognition period to
conversion transactions that occur on or
after August 8, 2016, and on or before
February 17, 2017. See final Regulations
section 1.337(d)-7 and Temporary
Regulations section 1.337(d)-7T for
details.
Recognized built-in gains and losses
generally retain their character (for
example, ordinary income or capital gain)
and are treated the same as other gains or
losses of the REIT. The REIT's tax on net
recognized built-in gain is treated as a loss
incurred by the REIT during the same tax
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Different rules apply to elections to be a
REIT and transfers of property in a
carryover basis transaction that occurred
prior to January 2, 2002. For REIT
elections and property transfers before
this date, the C corporation is subject to
deemed sale treatment on the transferred
property unless the REIT elects section
1374 treatment. See Regulations section
1.337(d)-6 for information on how to make
the election and figure the tax for REIT
elections and property transfers before
this date. The REIT may also rely on
Regulations section 1.337(d)-5 for REIT
elections and property transfers that
occurred before January 2, 2002.

Complete the Built-in Gains Tax
Worksheet to figure the built-in gains tax
under Regulations section 1.337(d)-7 or
1.337(d)-6.
Line a. Enter the amount that would be
the taxable income of the REIT for the tax
year if only recognized built-in gain,
recognized built-in loss, and recognized
built-in gain carryover were taken into
account, reduced by any portion of the
REIT's recognized built-in gain from:
• Net income from foreclosure property,
• Amounts subject to tax for failure to
meet certain source-of-income
requirements under section 857(b)(5)
computed in accordance with Regulations
section 1.337(d)-6(c)(2),
• Net income from prohibited
transactions under section 857(b)(6), and
• Amounts subject to tax under section
857(b)(7).
Line b. Add the amounts shown on:
• Form 1120-REIT, page 1, line 20;
• Form 1120-REIT, Part II, line 5; and
• Form 2438, line 11.
Subtract from the total the amount on
Form 1120-REIT, line 21c. Enter the result
on line b of the Built-in Gains Tax
Worksheet.
Line c. The REIT's net unrealized built-in
gain is the amount, if any, by which the fair
market value of the assets of the REIT at
the beginning of its first REIT year (or as of
the date the assets were acquired, for any
asset with a basis determined by
reference to its basis (or the basis of any
other property) in the hands of a C
corporation) exceeds the aggregate
adjusted basis of such assets at that time.
Enter on line c the REIT's net
unrealized built-in gain reduced by the net
recognized built-in gain for prior years.
See sections 1374(c)(2) and (d)(1).

Built-in Gains Tax Worksheet
a.
b.
c.
d.
e.
f.
g.
h.
i.

Keep for Your Records

Excess of recognized built-in gains over recognized built-in losses . . . . . . . . . . . . . . . . . . . . . . . . . . a.
Taxable income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b.
Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior
years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c.
Net recognized built-in gain (enter the smallest of line a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . d.
Section 1374(b)(2) deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . e.
Subtract line e from line d. If zero, enter -0- here and on line i . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . f.
Enter 21% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.
Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation
years (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.
Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 6 of
Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

Line d. If the amount on line b exceeds
the amount on line a, the excess is treated
as a recognized built-in gain in the
succeeding tax year.
Line e. Enter the section 1374(b)(2)
deduction. Generally, this is any NOL
carryforward or capital loss carryforward
(to the extent of the net capital gain
included in recognized built-in gain for the
tax year) arising in tax years for which the
REIT was a C corporation. These loss
carryforwards must be used to reduce
recognized built-in gain for the tax year to
the greatest extent possible before they
can be used to reduce the REIT's taxable
income.
Line g. A REIT reporting built-in gain for a
tax year ending before 2020 will enter
21% of line f.
Line h. Credit carryforwards arising in tax
years for which the REIT was a C
corporation must be used to reduce the
tax on net built-in gain for the tax year to
the greatest extent possible before the
credit carryforwards can be used to
reduce the tax on the REIT's taxable
income.
Note. If the REIT makes the election, the
unused minimum tax credits must first be
used to reduce the tax on net built-in gain
for the tax year to the greatest extent
possible. Any remaining unused minimum
tax credits are included on line 25g to
reduce the REIT's income tax. For more
information, see the instructions for
line 25g, earlier.
Line i. The REIT's tax on net recognized
built-in gain is treated as a loss sustained
by the REIT during the same tax year.
Deduct the tax attributable to:
• Ordinary gain as a deduction for taxes
on Form 1120-REIT, line 14.
• Short-term capital gain as a short-term
capital loss in Part I of Form 8949.

• Long-term capital gain as a long-term
capital loss in Part II of Form 8949.
How To Report
If the REIT checked the “Other” box,
attach a schedule showing the
computation of each item included in the
total for Schedule J, line 6. In addition,
identify: (a) the applicable Code section;
(b) the type of taxes or interest; and (c)
enter the amount of tax or interest.

Line 7—Total Tax

Include any deferred tax on the
termination of a section 1294 election
applicable to shareholders in a qualified
electing fund in the amount entered on
line 7. See Form 8621 and How To Report
below.
Subtract from the total for line 7 the
deferred tax on the REIT's share of the
undistributed earnings of a qualified
electing fund (see Form 8621).

How To Report
Attach a statement showing the
computation of each item included in, or
subtracted from, the total for line 7. On the
dotted line next to line 7, enter the amount
of tax or interest, identify it as tax or
interest, and specify the Code section that
applies.

Schedule K—Other
Information

Be sure to answer all the lines that apply
to the REIT.

Question 3

Check the “Yes” box if the REIT is a
subsidiary in a parent-subsidiary
controlled group (defined below), even if
the REIT is a subsidiary member of one
group and the parent corporation of
another.
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Note. If the REIT is an “excluded
member” of a controlled group (see
section 1563(b)(2)), it is still considered a
member of a controlled group for this
purpose.
Parent-subsidiary controlled group.
The term “parent-subsidiary controlled
group” means one or more chains of
corporations connected through stock
ownership (section 1563(a)(1)). Both of
the following requirements must be met.
1. At least 80% of the total combined
voting power of all classes of voting stock
entitled to vote or at least 80% of the total
value of all classes of stock of each
corporation in the group (except the
parent) must be owned by one or more of
the other corporations in the group, and
2. The common parent must own at
least 80% of the total combined voting
power of all classes of stock entitled to
vote or at least 80% of the total value of all
classes of stock of one or more of the
other corporations in the group. Stock
owned directly by other members of the
group is not counted when computing the
voting power or value.
See section 1563(d)(1) for the
definition of “stock” for purposes of
determining stock ownership above.

Question 5

Check the “Yes” box if one foreign person
owned at least 25% of (a) the total voting
power of all classes of stock of the REIT
entitled to vote, or (b) the total value of all
classes of stock of the REIT.
The constructive ownership rules of
section 318 apply in determining if a REIT
is foreign owned. See section 6038A(c)(5)
and the related regulations.
Enter on line 5a the percentage owned
by the foreign person specified on line 5.
On line 5b, enter the name of the owner's
country.

Note. If there is more than one
25%-or-more foreign owner, complete
lines 5a and 5b for the foreign person with
the highest percentage of ownership.
Foreign person. The term “foreign
person” means:
• A foreign citizen or nonresident alien.
• An individual who is a citizen or resident
of a U.S. possession (but who is not a
U.S. citizen or resident).
• A foreign partnership.
• A foreign corporation.
• Any foreign estate or trust within the
meaning of section 7701(a)(31).
• A foreign government (or one of its
agencies or instrumentalities) if it is
engaged in the conduct of a commercial
activity as described in section 892.
Owner's country. For individuals, the
term “owner's country” means the country
of residence. For all others, it is the
country where incorporated, organized,
created, or administered.
Requirement to file Form 5472. If the
REIT checked “Yes” to line 5, it may have
to file Form 5472. Generally, a 25%
foreign-owned corporation that had a
reportable transaction with a foreign or
domestic related party during the tax year
must file Form 5472.
See Form 5472 for filing instructions
and penalties for failure to file.

Item 8
Tax-exempt interest. Show any
tax-exempt interest received or accrued.
Include any exempt-interest dividends
received as a shareholder in a mutual fund
or other RIC.

Item 9

Enter the amount of the net operating loss
(NOL) carryforward to the tax year from
prior years, even if some of the loss is
used to offset income on this return. The
amount to enter is the total of all NOLs
generated in prior years but not used to
offset income in a tax year prior to 2019.
Do not reduce the amount by any NOL
deduction reported on line 21a.

Question 10
Business Interest Expense
Election
The limitation on business interest
expense applies to every taxpayer with a
trade or business, unless the taxpayer
meets certain specified exceptions. A
taxpayer may elect out of the limitation for
certain businesses otherwise subject to
the business interest expense limitation.
Certain real property trades or
businesses and farming businesses
qualify to make an election not to limit
business interest expense. This is an
irrevocable election. If you make this

election, you are required to use the
alternative depreciation system to
depreciate any property with a recovery
period of 10 years or more. Also, you are
not entitled to the special depreciation
allowance for that property. For a taxpayer
with more than one qualifying business,
the election is made with respect to each
business. Check “Yes” if the taxpayer has
an election in effect to exclude a real
property trade or business or a farming
business from section 163(j). For more
information, see section 163(j) and the
Instructions for Form 8990.

Question 11
Conditions for Filing Form 8990
Generally, a taxpayer with a trade or
business must file Form 8990 to claim a
deduction for business interest. In
addition, Form 8990 must be filed by any
taxpayer that owns an interest in a
partnership with current year, or prior year
carryover, excess business interest
expense allocated from the partnership.
Exclusions from filing. A taxpayer is not
required to file Form 8990 if the taxpayer
is a small business taxpayer and does not
have excess business interest expense
from a partnership. A taxpayer is also not
required to file Form 8990 if the taxpayer
only has business interest expense from
these excepted trades or businesses:
• An electing real property trade or
business,
• An electing farming business, or
• Certain utility businesses.
Small business taxpayer. A small
business taxpayer is not subject to the
business interest expense limitation and is
not required to file Form 8990.
A small business taxpayer is a taxpayer
that (a) is not a tax shelter (as defined in
section 448(d)(3)), and (b) meets the
gross receipts test of section 448(c),
discussed next.
Gross receipts test. A taxpayer
meets the gross receipts test if the
taxpayer has average annual gross
receipts of $26 million or less for the 3
prior tax years. A taxpayer's average
annual gross receipts for the 3 prior tax
years is determined by adding the gross
receipts for the 3 prior tax years and
dividing the total by 3.
Gross receipts include the aggregate
gross receipts from all persons treated as
a single employer, such as a controlled
group of corporations, commonly
controlled partnerships, or proprietorships,
and affiliated service groups. See section
448(c) and the Instructions for Form 8990
for additional information.

Question 12

To be certified as a qualified opportunity
fund, the corporation must file Form
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1120-REIT and attach Form 8996, even if
the corporation had no income or
expenses to report. If the corporation is
attaching Form 8996, check the “Yes” box
for Question 12. On the line following the
dollar sign, enter the amount from Form
8996, line 14.

Schedule L—Balance
Sheets per Books

The balance sheets should agree with the
REIT's books and records.

Line 1. Cash. Include certificates of
deposits as cash on line 1.
Line 4. Tax-exempt securities. Include
on this line:
• State and local government obligations,
the interest on which is excludable from
gross income under section 103(a), and
• Stock in a mutual fund or other RIC that
distributed exempt-interest dividends
during the tax year of the REIT.
Line 24. Adjustments to shareholders'
equity. Examples of adjustments to
report on this line include:
• Unrealized gains and losses on
securities held “available for sale.”
• Foreign currency translation
adjustments.
• The excess of additional pension
liability over unrecognized prior service
cost.
• Guarantees of employee stock (ESOP)
debt.
• Compensation related to employee
stock award plans.
If the total adjustment to be entered on
line 24 is a negative number, enter the
amount in parentheses.

Schedule M-1
Reconciliation of Income (Loss)
per Books With Income per
Return
Line 5c. Travel and entertainment.
Include any of the following.
• Entertainment not deductible under
section 274(a).
• Entertainment-related meal expenses.
• Non-entertainment meal expenses not
deductible under section 274(n).
• Expenses for the use of an
entertainment facility.
• The part of business gifts over $25.
• Expenses of an individual over $2,000,
that are allocable to conventions on cruise
ships.
• Employee achievement awards of
nontangible or tangible property over $400
($1,600 if part of a qualified plan).
• The cost of skyboxes.
• Nondeductible club dues.
• The part of luxury water travel not
deductible under section 274(m).

• Expenses for travel as a form of
education.
• Other nondeductible travel and
entertainment expenses.

For more information, see Pub. 535.
Line 7. Tax-exempt interest. Include as
interest any exempt-interest dividends

received by the REIT as a shareholder in a
mutual fund or other RIC.

Paperwork Reduction Act Notice. We ask for the information on these forms to carry out the Internal Revenue laws of the United
States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to
figure and collect the right amount of tax.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form
displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents
may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential,
as required by section 6103.
Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of
December 2019 for taxpayers filing 2019 Forms 1065, 1066, 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-S, 1120-SF, 1120-FSC,
1120-L, 1120-PC, 1120-REIT, 1120-RIC, 1120-POL, and related attachments. Time spent and out-of-pocket costs are presented
separately. Time burden is broken out by taxpayer activity, with reporting representing the largest component. Out-of-pocket costs
include any expenses incurred by taxpayers to prepare and submit their tax returns. Examples include tax return preparation and
submission fees, postage and photocopying costs, and tax preparation software costs. While these estimates do not include burden
associated with post-filing activities, IRS operational data indicate that electronically prepared and filed returns have fewer arithmetic
errors, implying lower post-filing burden.
Tables 1, 2, and 3 below show the burden model estimates for each of the three classifications of business taxpayers: Partnerships
(Table 1), corporations (Table 2) and S corporations (Table 3). As the tables show, the average filing compliance is different for the
three forms of business. Showing a combined average burden for all businesses would understate the burden for corporations and
overstate the burden for the two pass-through entities (partnerships and corporations). In addition, the burden for small and large
businesses is shown separately for each type of business entity in order to clearly convey the substantially higher burden faced by the
largest businesses.

Table 1 – Taxpayer Burden for Entities Taxed as Partnerships
Forms 1065, 1066, and all attachments
Primary Form Filed or Type of
Taxpayer
All Partnerships

Number of Returns
(millions)

Average Time per Taxpayer
(hours)

Average Cost per
Taxpayer

Average Monetized
Burden

4.5

290

$5,900

$17,800

Small

4.2

270

$4,400

$13,200

Other*

0.3

610

$29,000

$89,300

*“Other” is defined as one having end-of-year assets greater than $10 million. A large business is defined the same way for partnerships, taxable corporations, and pass-through
corporations. A small business is any business that does not meet the definition of a large business.

Table 2 – Taxpayer Burden for Entities Taxed as Taxable Corporations
Forms 1120, 1120-C, 1120-F, 1120-H, 1120-ND, 1120-SF, 1120-FSC, 1120-L, 1120-PC, 1120-POL, and all attachments
Primary Form Filed or Type of
Taxpayer
All Taxable Corporations

Number of Returns
(millions)

Average Time per Taxpayer
(hours)

Average Cost per
Taxpayer

Average Monetized
Burden
$23,500

2.1

335

$7,700

Small

2.0

280

$4,000

$13,500

Large*

0.1

1,255

$70,200

$194,800

*A “large” business is defined as one having end-of-year assets greater than $10 million. A “large” business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.

Table 3 – Taxpayer Burden for Entities Taxed as Pass-Through Corporations
Forms 1120-REIT, 1120-RIC, 1120-S, and all attachments
Primary Form Filed or Type of
Taxpayer
All Pass-Through Corporations

Number of Returns
(millions)

Average Time per Taxpayer
(hours)

Average Cost per
Taxpayer

Average Monetized
Burden

5.4

245

$3,500

$11,300

Small

5.3

240

$3,100

$10,200

Large*

0.1

610

$30,900

$91,500

*A “large” business is defined as one having end-of-year assets greater than $10 million. A “large” business is defined the same way for partnerships, taxable corporations, and
pass-through corporations. A small business is any business that does not meet the definition of a large business.

Note. The data shown are the best estimates for 2019 business entity income tax returns. Reported time and cost burdens are
national averages and do not reflect a “typical” case. Most taxpayers experience lower than average burden varying considerably by
taxpayer type. The estimates are subject to change as new forms and data become available.
-20-

Comments. If you have comments concerning the accuracy of these time estimates or suggestions for making these forms
simpler, we would be happy to hear from you. You can send us comments from IRS.gov/FormComments. Or you can write to the
Internal Revenue Service, Tax Forms and Publications, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the
tax form to this address. Instead, see Where To File, earlier, near the beginning of the instructions.

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