Company: IIPR
Filing Date: 2025-02-21
Form Type: S-3ASR
Source: 0001104659-25-016184
Chunk: 86

Company: INNOVATIVE INDUSTRIAL PROPERTIES INC
Filing Date: 2025-02-21
Form: S-3ASR
Chunk 86
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 the sale of our shares
of capital stock.

With respect to distributions that we designate
as capital gain dividends and any retained capital gain that we are deemed to distribute, we will designate whether such a distribution
is taxable to U.S. holders taxed at individual rates at a 20% or 25% rate. The highest marginal individual income tax rate currently
is 37%. Thus, the tax rate differential between capital gain and ordinary income for those taxpayers may be significant. In addition,
the characterization of income as capital gain or ordinary income may affect the deductibility of capital losses, including capital losses
recognized upon the disposition of our shares. A non-corporate taxpayer may deduct capital losses not offset by capital gains against
its ordinary income only up to a maximum annual amount of $3,000. A non-corporate taxpayer may carry forward unused capital losses indefinitely.
A corporate taxpayer must pay tax on its net capital gain at ordinary corporate rates (currently up to 21%). A corporate taxpayer may
deduct capital losses only to the extent of capital gains, with unused losses being carried back three years and forward five years.
The Service and the U.S. Treasury Department have issued final regulations effective for tax years commencing on or after January 19,
2021 that impose special rules in respect of capital gain dividends received through partnership interests constituting “applicable
partnership interests” under Section 1061 of the Code. If we fail to provide the additional reporting set forth in these rules,
capital gain dividends may be recharacterized as short-term capital gains for certain holders of applicable partnership interests and
not eligible for reduced rates of tax. The regulations provide that REITs may, but are not required to, provide this additional reporting.

If a U.S. stockholder recognizes a loss upon
a disposition of our stock in an amount that exceeds a prescribed threshold, it is possible that the provisions of Treasury Regulations
involving “reportable transactions” could apply, resulting in a requirement to separately disclose the loss-generating transaction
to the Service. These Treasury Regulations are written quite broadly and apply to many routine and simple transactions. A reportable
transaction currently includes, among other things, a sale or exchange of stock resulting in a tax loss in excess of (a) $10 million
in any single year or $20 million in any combination of years in the case of stock held by a C corporation or by a partnership with only
C corporation partners or (b) $2 million in any single year or