2023

Instructions for Form 

1120-REIT

U.S. Income Tax Return for Real Estate Investment Trusts

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue Code unless 

otherwise noted.

Contents Page

Photographs of Missing Children ................ 1

The Taxpayer Advocate Service ................. 1

How To Get Forms and Publications .............. 2

General Instructions ......................... 2

Purpose of Form ............................ 2

Who Must File ............................. 2

General Requirements To Qualify as a REIT ........ 2

Other Requirements ......................... 2

Termination of Election ....................... 2

Taxable REIT Subsidiaries (TRS) ................ 2

Where To File .............................. 3

When To File .............................. 3

Who Must Sign ............................. 4

Paid Preparer Authorization .................... 4

Assembling the Return ....................... 4

Tax Payments .............................. 4

Estimated Tax Payments ...................... 5

Interest and Penalties ........................ 5

Accounting Methods ......................... 5

Accounting Period .......................... 6

Rounding Off to Whole Dollars .................. 6

Recordkeeping ............................. 6

Other Forms That May Be Required .............. 6

Statements ............................... 7

Specific Instructions ......................... 8

Period Covered ............................ 8

Name and Address .......................... 8

Item B. 100%-Owned Subsidiaries and Personal 

Holding Companies ...................... 8

Item C. Employer Identification Number (EIN) ....... 8

Item D. Date REIT Established .................. 8

Item E. Total Assets ......................... 8

Item F. Final Return, Name Change, Address 

Change, or Amended Return ................ 8

Item G. Type of REIT ......................... 9

Item H. PBA Code (Equity REITs Only) ............ 9

Part I—Real Estate Investment Trust Taxable 

Income ............................... 9

Part II—Tax on Net Income From Foreclosure 

Property .............................. 15

Part III—Tax for Failure To Meet Certain 

Source-of-Income Requirements ............ 15

Part IV—Tax on Net Income From Prohibited 

Transactions ........................... 15

Contents Page

Schedule A—Deduction for Dividends Paid ....... 16

Schedule J—Tax Computation ................. 16

Schedule K—Other Information ................ 19

Schedule L—Balance Sheets per Books ......... 20

Schedule M-1 ............................. 20

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 tax returns required 

to be filed in 2024, the minimum penalty for failure to file a return 

that is over 60 days late has increased to the smaller of the tax 

due or $485. See Late filing of return, later.

Deduction for certain energy efficient commercial building 

property. For tax years beginning in 2023, REITs claiming the 

deduction for energy efficient commercial buildings should report 

the deduction on line 18 of Form 1120-REIT. See the instructions 

for line 18, later.

Expiration of 100% business meal expense deduction. The 

temporary 100% business meal expense deduction for food and 

beverages provided by a restaurant does not apply to amounts 

paid or incurred after 2022.

Elective payment election. Applicable entities and electing 

taxpayers can elect to treat certain credits as elective payments. 

Any resulting overpayment may result in refunds. See the 

instructions for line 25h, later. Also, see the Instructions for Form 

3800.

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.

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

Jan 25, 2024 Cat. No. 64243J
• The REIT has tried repeatedly to contact the IRS but no one 

has responded, or the IRS hasn't responded by the date 

promised.

TAS has offices in every state, the District of Columbia, and 

Puerto Rico. Local advocates' numbers are in their local 

directories and at TaxpayerAdvocate.IRS.gov. The REIT can 

also call TAS at 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 view, 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.

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 certify as a qualified 

opportunity fund (QOF), 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, 

later. 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 second 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 first 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 first 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 (EIN) 

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 first year for which the 

termination or revocation is effective. See section 856(g)(4) for 

exceptions.

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).

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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)), and

• 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.

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 must generally file by the 15th day of the 4th 

month after the short period ends. A REIT that has dissolved 

must generally 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 a PDS, go 

to IRS.gov/PDSStreetAddresses.

Private delivery services can't deliver items to P.O. 

boxes. You 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 

CAUTION

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Where To File

File the REIT's return at the applicable IRS address listed below.

If the REIT's principal business, office, or 

agency is located in:

And the total assets at the end of the 

tax year are:

Use the following address:

Connecticut, Delaware, District of Columbia, 

Georgia, Illinois, Indiana, Kentucky, Maine, 

Maryland, Massachusetts, Michigan, New 

Hampshire, New Jersey, New York, North 

Carolina, Ohio, Pennsylvania, Rhode Island, 

South Carolina, Tennessee, Vermont, 

Virginia, West Virginia, Wisconsin

Less than $10 million and Schedule M-3 

is not filed

Department of the Treasury

Internal Revenue Service

Kansas City, MO 64999-0012

$10 million or more, or less than $10 

million and Schedule M-3 is filed

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. territory 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.

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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.

Paid Preparer Use Only section. If an employee of the REIT 

completes Form 1120-REIT, the paid preparer's section 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 

complete the section.

The paid preparer must complete the required preparer 

information and:

• Sign the return in the space provided for the preparer's 

signature,

• Include their Preparer Tax Identification Number (PTIN), and

• Give a copy of the return to the REIT.

A paid preparer may sign the 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 2023 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 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 REIT before the IRS.

The authorization will automatically end no later than the due 

date (without regard to extensions) for filing the REIT's 2024 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 5 of Form 

1120-REIT, in the following order.

1. Schedule N (Form 1120).

2. Schedule D (Form 1120).

3. Form 8949.

TIP

4. Form 8996.

5. Form 4136.

6. Form 8978.

7. Form 965-B.

8. Form 8941.

9. Form 3800.

10. Form 8997

11. Additional schedules in alphabetical order.

12. Additional forms in numerical order.

13. 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 transfers 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 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. To contact EFTPS using Telecommunications 

Relay Services (TRS) for people who are deaf, hard of hearing, 

or have a speech disability, dial 711 and provide the TRS 

assistant the 800-555-4477 number above or 800-733-4829. 

Additional information about EFTPS is also available in Pub. 966.

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.

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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 transfers 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 installment is due on the next 

regular business day.

• If, after the REIT figures and deposits estimated tax, it finds 

that its tax liability for the year will be more or less than originally 

estimated, it may have to refigure its required installments. If 

earlier installments were underpaid, the REIT may owe a penalty. 

See the instructions for line 26, later.

• 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.

See section 6655 and Pub. 542, Corporations, for more 

information on how to figure estimated taxes.

Interest and Penalties

If the corporation receives a notice about penalties after 

it files its return, send the IRS an explanation and we will 

determine if the corporation meets the 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 tax return required to be filed in 2024 that is over 60 days 

late is the smaller of the tax due or $485. 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 may generally 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 

CAUTION

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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.

Note. The trust fund recovery penalty will not apply to any 

amount of trust fund taxes an employer holds back in anticipation 

of the credit for qualified sick and family leave wages or the 

employee retention credit that they are entitled to. See Pub. 15 or 

Pub. 51 for more information.

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 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 $29 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. Also, see the Instructions for Form 3115 for 

procedures that may apply for obtaining automatic consent to 

change certain methods of accounting, non-automatic change 

procedures, and reduced Form 3115 filing requirements.

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 

5
as other income. If the net section 481(a) adjustment is negative, 

report it on line 19 as a deduction.

Note. Include any net positive section 481(a) adjustment on 

Part I, line 7. Report any negative adjustment on Part I, line 19.

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.

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.

• 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 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.

• Form 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 Schedule K, Question 5, 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 7205, Energy Efficient Commercial Buildings 

Deduction. Use Form 7205 to calculate and claim the deduction 

under section 179D for qualifying energy efficient commercial 

buildings placed in service during the tax year.

• 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.

6
• 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 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 Actions 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)(1)) 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 

7
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 (CFC), 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 1.355-5(b) on or with its return for the 

year of receipt. If the distributing or distributee corporation is a 

CFC, 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 transferee corporation may elect under 

section 362(e)(2)(C) to reduce the transferor's basis in the stock 

received instead of reducing the transferee 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 REIT may need to file in addition to the 

forms and statements discussed throughout these instructions.

Specific Instructions

Period Covered

File the 2023 return for calendar year 2023 and fiscal years that 

begin in 2023 and end in 2024. For a fiscal year return, fill in the 

tax year in the space at the top of the form.

Note. The 2023 Form 1120-REIT can also be used if:

• The REIT has a tax year of less than 12 months that begins 

and ends in 2024, and

• The 2024 Form 1120-REIT is not available at the time the 

REIT is required to file its return.

The REIT must show its 2024 tax year on the 2023 Form 

1120-REIT and take into account any tax law changes that are 

effective for tax years beginning after December 31, 2023.

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, Arkansas, 

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. territories can 

use the online application process.

Item D. Date REIT Established

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.

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 

8
with the new information, and refigure the REIT's tax liability. 

Attach a statement that explains the reasons 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.

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, line 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 include the following.

• 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 19 of 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 the REIT elected to take section 965(a) inclusions and 

corresponding section 965(c) deductions into account over 8 

years in accordance with section 965(m), include the 

current-year net section 965 inclusion (the section 965(a) 

inclusion less the corresponding section 965(c) deduction) on 

this line 7. You must also complete and attach Form 965-B, 

Corporate and Real Estate Investment Trust (REIT) Report of 

Net 965 Tax Liability and Electing REIT Report of 965 Amounts.

• Form 965-B must be completed by an electing REIT for every 

tax year for which the REIT has any section 965 amounts taken 

into account in accordance with section 965(m) or not fully taken 

9
into account at any point during the tax year. For more 

information, see Form 965-B and the related instructions.

• Any payroll tax credit taken by an employer on its 2023 

employment tax returns (Forms 941, 943, and 944) for qualified 

paid sick and qualified paid family leave under the FFCRA and 

the ARP (both the nonrefundable and refundable portions). The 

REIT must include the full amount of the credit for qualified sick 

and family leave wages in gross income for the tax year that 

includes the last day of any calendar quarter in which the credit 

is allowed.

Note. A credit is available only if the leave was taken after March 

31, 2020, and before October 1, 2021, and only after the 

qualified leave wages were paid, which might under certain 

circumstances not occur until a quarter after September 30, 

2021, including quarters in 2023.

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.

REITs 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 

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.

Limitations on business interest expense. Business interest 

expense may be limited. See section 163(j) and Form 8990. 

Also, see Limitation on deduction in the instructions for line 15 

and 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.

For more details, see the Instructions for Form 4562, 

Depreciation and Amortization.

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 19. 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 

officers’ 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:

• Part I, line 8;

• Net capital gain from Part III, line 10; and

• Form 2438, line 9a.

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;

10
• 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 officers 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 personal use of a car, do not deduct 

as wages the amounts allocated for depreciation and 

other expenses claimed on lines 16 and 19.

If the REIT claims a credit for any wages paid or 

incurred, it may need to reduce any corresponding 

deduction for officers’ compensation and salaries and 

wages. See the instructions for the form used to figure the 

applicable credit for more details.

Line 11. Repairs and maintenance. Enter the cost of repairs 

and maintenance not claimed elsewhere on the return, such as 

labor and supplies, that are not payments to produce or improve 

tangible or real property. See Regulations section 1.263(a)-1. 

For example, amounts are paid for improvements if they are for 

betterments to the property, restorations of the property (such as 

replacements of major components or substantial structural 

parts), or if they adapt the property to a new or different use. 

Amounts paid to produce or improve property must be 

capitalized. See Regulations sections 1.263(a)-2 and -3. The 

REIT can deduct repair and maintenance expenses only to the 

extent they relate to a trade or business activity. See Regulations 

section 1.162-4. The REIT may elect to capitalize certain repair 

and maintenance costs consistent with its books and records. 

See Regulations section 1.263(a)-3(n) for information on how to 

make the election.

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. 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:

The lease term began:

And the vehicle's FMV on the first day of the 

lease exceeded:

Cars (excluding trucks and vans):

After 12/31/22 but before 1/1/24 . . $60,000

After 12/31/21 but before 1/1/23 ... $56,000

After 12/31/20 but before 1/1/22 ... $51,000

After 12/31/17 but before 1/1/21 ... $50,000

After 12/31/12 but before 1/1/18 ... $19,000

Trucks and vans:

After 12/31/22 but before 1/1/24 ... $60,000

After 12/31/21 but before 1/1/23 ... $56,000

After 12/31/20 but before 1/1/22 ... $51,000

After 12/31/17 but before 1/1/21 ... $50,000

After 12/31/13 but before 1/1/18 ... $19,500

After 12/31/09 but before 1/1/14 ... $19,000

See Pub. 463, Travel, Gift, and Car Expenses, for instructions 

on figuring the inclusion amount. The inclusion amount for lease 

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terms beginning in 2024 will be published in the Internal 

Revenue Bulletin in early 2024.

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. territory income taxes if a tax credit is claimed 

(however, see the Instructions for Form 5735 for special rules for 

territory 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.

Do not reduce the REIT’s deduction for social security 

and Medicare taxes by the nonrefundable and 

refundable portions of any FFCRA and ARP credits for 

qualified sick and family leave wages claimed on its employment 

tax returns. Instead, report this amount as income on line 7.

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 2023 prepaid interest allocable to any 

period after 2023 can deduct only the amount allocable to 2023).

• 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. Under section 163(j), business 

interest expense is generally 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 $29 million or 

less for the 3 prior tax years. Gross receipts generally include the 

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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 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), Form 8990, and the related 

instructions. Also, see the 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.

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. Energy efficient commercial buildings deduction. 

Complete and attach Form 7205 if claiming the energy efficient 

building deduction. See the Instructions for Form 7205 for more 

information. Also, see section 179D.

Line 19. 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 19. 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 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.

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 

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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. Generally, the total amount 

claimed may not be more than 10% of taxable income (the sum 

of Part I, line 23; 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).

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.

12
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 

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 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 the 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 and 

Pub. 463, 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:

• That individual is an employee of the REIT, and

• That individual’s 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 and Pub. 15-B 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. Generally, 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-NEC 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.

Fines or similar penalties. Generally, no deduction is allowed 

for fines or similar penalties paid or incurred to, or at the direction 

of a government or governmental entity for violating any law, or 

for the investigation or inquiry into the potential violation of a law, 

except:

• Amounts that constitute restitution;

• Amounts paid to come into compliance with the law;

• Amounts paid or incurred as the result of orders or 

agreements in which no government or governmental entity is a 

party; and

• Amounts paid or incurred for taxes due.

No deduction is allowed unless the amounts are specifically 

identified in the order or agreement and the REIT establishes 

that the amounts were paid for that purpose. 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 21. 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 21.

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 

13
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 22a. 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 21) reduced by the dividends paid deduction 

(line 22b) and the section 857(b)(2)(E) deduction (line 22c). 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 

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). However, NOLs arising in taxable 

years prior to January 1, 2018, and carried over to the current 

taxable year are not subject to this limitation.

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.

• When 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 22a is reduced by the reduction amount. See section 965(n) 

for more information.

Tax and Payments

Line 25b. Estimated tax payments. Enter any estimated tax 

payments the REIT made for the current tax year.

Line 25f. Credit from Form 2439. Enter the credit (from Form 

2439) for the REIT's share of the tax paid by a Regulated 

Investment Company (RIC) or another REIT on undistributed 

long-term capital gains included in the REIT's income. Attach 

Form 2439 to Form 1120-REIT.

Line 25g. Credit for federal tax on fuels. 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 25h. Elective payment election amount from Form 

3800. Enter on line 25h the total net elective payment election 

amount from Form 3800, General Business Credit, Part III, line 6, 

column (i). See the Instructions for Form 3800.

Line 25i. Total payments and credits. 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;

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• 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 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 tax 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 on line 7 in Part I that is 

excluded from sections 856(c)(2) and 856(c)(3) pursuant to 

section 965(m)(1), report that amount on lines 2d and 5d of Part 

III. 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, lines 2f 

and 2g.

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 

15
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)(9), 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 Part 

I, line 22b) is 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)).

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

Line 2f—Tax Imposed Under Section 856(c)(7)

Enter the tax imposed for relief provisions under section 856(c)

(7) relating to failures to meet the requirements of the asset test 

of section 856(c)(4). See section 856(c)(7) for detailed 

information on the requirements for this relief provision.

If a tax is imposed under section 856(c)(7), attach a 

statement providing an explanation of why the REIT failed to 

meet the requirements of the asset test 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 minimis 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 that 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 specified schedule for 

the quarter in which the failure occurred by 21%.

Note. There is no tax imposed and you are not required to 

attach a schedule of assets to Form 1120-REIT for the de 

minimis 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)(iv) 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)(B)(iv) 

are otherwise met within the specified time period.

Line 2g—Tax Imposed Under Section 856(g)(5)

Enter the tax imposed for relief provisions under 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 section 856(g)(5) for detailed 

information on the requirements for this relief provision.

16
If a tax is imposed for section 856(g)(5), attach a statement 

providing an explanation of why the REIT failed to meet the other 

qualification requirements under sections 856–859, and a 

description of why such failure is due to reasonable cause and 

not willful neglect.

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 2h—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 2h. On the 

dotted line to the left of line 2h, enter “Section 1291” and the 

amount.

Do not include on line 2h any interest due under section 

1291(c)(3). Instead, include the amount of interest owed on 

Schedule J, line 10, 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 2h. On the dotted line next to line 2h, enter “Section 

197” and the amount. See section 197(f)(9)(B)(ii).

Increase in tax attributable to partner’s audit liability under 

section 6226. If the REIT is filing Form 8978, Partner’s 

Additional Reporting Year Tax, to report adjustments shown on 

Form 8986, Push Out to Partners Under IRC 6226(a)(2), they 

received from partnerships that 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 2h. On the dotted line next to line 2h, 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. territory, 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

Use Form 3800 to claim any general business credits. Enter on 

line 3c the allowable credit from Form 3800, Part II, line 38. See 

the Instructions for Form 3800.

Line 3d—Other Credits

Minimum tax credit. Enter any allowable credit from Form 

8827, Credit for Prior Year Minimum Tax—Corporations. 

Complete and attach Form 8827.

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 that 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 the 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 2h.

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—Interest on Deferred Tax Liability Under 

Section 453A(c)

Include any interest on deferred tax attributable to certain 

nondealer installment obligations (section 453A(c)).

Line 7—Interest on Deferred Tax Liability Under 

Section 453(l)

Include any interest on deferred tax attributable to certain dealer 

installment obligations under section 453(l).

Line 8 —Recapture of Investment Credit

If the REIT disposed of investment credit property or changed its 

use before the end of the 5-year recapture period under section 

50(a), enter the increase in tax from Form 4255, Recapture of 

Investment Credit. See the Instructions for Form 4255.

Line 9—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.

Line 10—Other Taxes

Include on line 10 additional taxes and interest such as the 

following. Attach a statement showing the computation of each 

item included in the total for line 10 and identify the applicable 

Code section and the type of tax or interest.

• 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 gain (section 1260(b)).

• Interest due under section 1291(c)(3). See Form 8621 and the 

Instructions for Form 8621.

17
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 Form 8866.

Include the interest due under the look-back methods on 

line 10.

Built-in Gains Tax and Worksheet

Built-in Gains Tax

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 2020, 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)-7T(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 year (see the 

instructions for line i of the Built-in Gains Tax Worksheet, later). 

See Regulations section 1.337(d)-7 for details.

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.

Built-in Gains Tax Worksheet Instructions

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, Part l, line 21;

• Form 1120-REIT, Part II, line 5; and

• Form 2438, line 11.

Subtract from the total the amount on Form 1120-REIT, 

line 22c. 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).

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 2023 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.

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.

Line 11—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 11. See Form 8621 and How To 

Report below.

18
Subtract from the total for line 11 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 11. On the dotted 

line next to line 11, 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.

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. territory (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” on 

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 2023. Do not reduce the amount by any NOL 

deduction reported on line 22a.

Built-in Gains Tax Worksheet Keep for Your Records

a. Excess of recognized built-in gains over recognized built-in losses ........................... a.

b. Taxable income .................................................................... b.

c. Enter the net unrealized built-in gain reduced by any net recognized built-in gain for all prior 

years ............................................................................. c.

d. Net recognized built-in gain (enter the smallest of line a, b, or c) ............................. d.

e. Section 1374(b)(2) deduction ......................................................... e.

f. Subtract line e from line d. If zero, enter -0- here and on line i ............................... f.

g. Enter 21% (0.21) of line f ............................................................. g.

h. Business credit and minimum tax credit carryforwards under section 1374(b)(3) from C corporation 

years (see instructions) .............................................................. h.

i. Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 10 of 

Schedule J. See instructions .......................................................... i.

19
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 REIT 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 REIT that owns an interest in a partnership 

with current or prior-year carryover from excess business interest 

expense allocated from the partnership.

Exclusions from filing. A REIT is not required to file Form 

8990 if the REIT is a small business taxpayer and does not have 

excess business interest expense from a partnership. A REIT is 

also not required to file Form 8990 if the REIT only has business 

interest expense from the following excepted trades or 

businesses.

• An electing real property trade or business,

• An electing farming business, or

• Certain utility businesses.

Small business taxpayer. For 2023, 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. For 2023, a taxpayer meets the gross 

receipts test if the taxpayer has average annual gross receipts of 

$29 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 certify as a QOF, the REIT must file Form 1120-REIT and 

attach Form 8996, even if the REIT had no income or expenses 

to report. If the REIT 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 15.

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.

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.

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Estimates of Taxpayer Burden. The following tables show burden estimates based on current statutory requirements as of 

December 2023 for taxpayers filing 2023 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 don’t 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.

Reported time and cost burdens are national averages and don’t necessarily reflect a “typical” case. Most taxpayers experience 

lower than average burden, with taxpayer burden varying considerably by taxpayer type.

The average burden for partnerships filing Forms 1065 and related attachments is about 60 hours and $5,000; the average burden 

for corporations filing Form 1120 and associated forms is about 105 hours and $6,700; and the average burden for Forms 1066, 

1120-REIT, 1120-RIC, 1120-S, and all related attachments is 65 hours and $4,400. Within each of these estimates there is significant 

variation in taxpayer activity. Tax preparation fees and other out-of-pocket costs vary extensively depending on the tax situation of the 

taxpayer, the type of software or professional preparer used, and the geographic location. Third-party burden hours are not included in 

these estimates.

Table 1 – Taxpayer Burden for Entities Taxed as Partnerships

Forms 1065, 1066, and all attachments

Primary Form Filed or Type of 

Taxpayer

Total Number of Returns 

(millions)

Average Time (hours) Average Cost ($) Average Monetized 

Burden ($)

All Partnerships 5.3 60 5,000 8,700

Small 4.9 50 3,200 5,200

Large* 0.4 200 27,800 50,800

* 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 doesn’t 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

Total Number of Returns 

(millions)

Average Time (hours) Average Cost ($) Average Monetized 

Burden ($)

All Taxable Corporations 2.1 105 6,700 14,900

Small 2.0 55 3,600 6,200

Large* 0.1 830 53,800 149,000

*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 doesn’t 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

Total Number of Returns 

(millions)

Average Time (hours) Average Cost ($) Average Monetized 

Burden ($)

All Pass-Through Corporations 5.8 65 4,400 7,500

Small 5.7 60 3,800 6,400

Large* 0.1 295 37,700 71,800

*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 doesn’t meet the definition of a large business. 

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, near the beginning of the instructions.

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