asset which would cease to be a real estate 
asset if subparagraph (B) were applied 
without regard to the reference to ‘debt in-
struments 
issued 
by 
publicly 
offered 
REITs’.’’. 
(b) INTERESTS IN MORTGAGES ON INTERESTS IN 
REAL PROPERTY TREATED AS REAL ESTATE ASSETS.— 
Subparagraph (B) of section 856(c)(5) is amended by in-
serting ‘‘or on interests in real property’’ after ‘‘interests 
in mortgages on real property’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 302. ASSET AND INCOME TEST CLARIFICATION RE-
GARDING ANCILLARY PERSONAL PROPERTY. 
(a) IN GENERAL.—Subsection (c) of section 856 is 
amended by adding at the end the following new para-
graph: 
‘‘(9) SPECIAL RULES FOR CERTAIN PERSONAL 
PROPERTY
WHICH
IS
ANCILLARY
TO
REAL
PROP-
ERTY.— 
‘‘(A) 
CERTAIN
PERSONAL
PROPERTY 
LEASED
IN
CONNECTION
WITH
REAL
PROP-
ERTY.—Personal property shall be treated as a 
real estate asset for purposes of paragraph 
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(4)(A) to the extent that rents attributable to 
such personal property are treated as rents 
from real property under subsection (d)(1)(C). 
‘‘(B) 
CERTAIN
PERSONAL
PROPERTY 
MORTGAGED IN CONNECTION WITH REAL PROP-
ERTY.—In the case of an obligation secured by 
a mortgage on both real property and personal 
property, if the fair market value of such per-
sonal property does not exceed 15 percent of 
the total fair market value of all such property, 
such personal property shall be treated as real 
property for purposes of applying paragraphs 
(3)(B) and (4)(A). For purposes of the pre-
ceding sentence, the fair market value of all 
such property shall be determined in the same 
manner as the fair market value of real prop-
erty is determined for purposes of apportioning 
interest income between real property and per-
sonal property under paragraph (3)(B).’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
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SEC. 303. SPECIAL RULES FOR TREATMENT OF TIMBER 
GAINS MADE PERMANENT. 
(a) IN GENERAL.—Subparagraph (H) of section 
856(c)(5) is amended by striking clause (iii). 
(b) CLARIFICATION OF EXEMPTION FROM PROHIB-
ITED TRANSACTION RULES.—Subclause (II) of section 
856(c)(5)(H)(ii) is amended to read as follows: 
‘‘(II) EXEMPTION FROM PROHIB-
ITED TRANSACTION RULES.—For pur-
poses of this part, income described in 
this subparagraph shall not be treated 
as gain from a prohibited trans-
action.’’. 
(c) CONFORMING AMENDMENTS.— 
(1) Subclause (I) of section 856(c)(5)(H)(ii) is 
amended by inserting ‘‘DEEMED SALE OF CUT TIM-
BER.—’’ before ‘‘For purposes of’’. 
(2) Subsection (c) of section 856, as amended 
by section 302, is amended by striking paragraph 
(8) and redesignating paragraph (9) as paragraph 
(8). 
(3) Paragraph (6) of section 857(b), as amend-
ed by section 101(a), is amended by striking sub-
paragraphs (I) and (J). 
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(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 304. TREATMENT OF MINERAL ROYALTY INCOME AS 
QUALIFYING INCOME. 
(a) IN
GENERAL.—Subparagraph (I) of section 
856(c)(2) is amended to read as follows: 
‘‘(I) mineral royalty income (including oil 
and gas royalties) from real property owned by 
a real estate investment trust and held, or once 
held, in connection with the trust’s trade or 
business of generating rents from real property 
or producing timber;’’. 
(b) CONFORMING AMENDMENT.—Paragraph (5) of 
section 856(c), as amended by section 301, is amended 
by striking subparagraph (I) and by redesignating sub-
paragraphs (J), (K), and (L) as subparagraphs (I), (J), 
and (K), respectively. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 305. HEDGING PROVISIONS. 
(a) MODIFICATION TO PERMIT THE TERMINATION 
OF A HEDGING TRANSACTION USING AN ADDITIONAL 
HEDGING INSTRUMENT.—Subparagraph (G) of section 
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856(c)(5) is amended by striking ‘‘and’’ at the end of 
clause (i), by striking the period at the end of clause (ii) 
and inserting ‘‘, and’’, and by adding at the end the fol-
lowing new clause: 
‘‘(iii) if— 
‘‘(I) a real estate investment 
trust enters into one or more positions 
described in clause (i) with respect to 
indebtedness described in clause (i) or 
one or more positions described in 
clause (ii) with respect to property 
which generates income or gain de-
scribed in paragraph (2) or (3), 
‘‘(II) any portion of such indebt-
edness is extinguished or any portion 
of such property is disposed of, and 
‘‘(III) in connection with such ex-
tinguishment 
or 
disposition, 
such 
trust enters into one or more hedging 
transactions (as defined in clause (ii) 
or (iii) of section 1221(b)(2)(A)) with 
respect to any position referred to in 
subclause (I), 
any income of such trust from any position 
referred to in subclause (I) and from any 
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transaction referred to in subclause (III) 
(including gain from the termination of 
any such position or transaction) shall not 
constitute gross income under paragraphs 
(2) and (3) to the extent that such trans-
action hedges such position.’’. 
(b) IDENTIFICATION REQUIREMENTS.— 
(1) IN GENERAL.—Subparagraph (G) of section 
856(c)(5), as amended by subsection (a), is amended 
by striking ‘‘and’’ at the end of clause (ii), by strik-
ing the period at the end of clause (iii) and inserting 
‘‘, and’’, and by adding at the end the following new 
clause: 
‘‘(iv) clauses (i), (ii), and (iii) shall 
not apply with respect to any transaction 
unless such transaction satisfies the identi-
fication requirement described in section 
1221(a)(7) (determined after taking into 
account any curative provisions provided 
under the regulations referred to there-
in).’’. 
(2) 
CONFORMING
AMENDMENTS.—Subpara-
graph (G) of section 856(c)(5) is amended— 
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(A) by striking ‘‘which is clearly identified 
pursuant to section 1221(a)(7)’’ in clause (i), 
and 
(B) by striking ‘‘, but only if such trans-
action is clearly identified as such before the 
close of the day on which it was acquired, origi-
nated, or entered into (or such other time as 
the Secretary may prescribe)’’ in clause (ii). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
TITLE IV—EARNINGS AND PROF-
ITS OF REAL ESTATE INVEST-
MENT TRUSTS 
SEC. 401. MODIFICATION OF REAL ESTATE INVESTMENT 
TRUST EARNINGS AND PROFITS CALCULA-
TION TO AVOID DUPLICATE TAXATION. 
(a) EARNINGS AND PROFITS NOT INCREASED BY 
AMOUNTS ALLOWED IN COMPUTING TAXABLE INCOME IN 
PRIOR YEARS.— 
(1) IN
GENERAL.—Paragraph (1) of section 
857(d) is amended to read as follows: 
‘‘(1) IN GENERAL.—The earnings and profits of 
a real estate investment trust for any taxable year 
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(but not its accumulated earnings) shall not be re-
duced by any amount which— 
‘‘(A) is not allowable in computing its tax-
able income for such taxable year, and 
‘‘(B) was not allowable in computing its 
taxable income for any prior taxable year.’’. 
(2) EXCEPTION
FOR
PURPOSES
OF
DETER-
MINING
DIVIDENDS
PAID
DEDUCTION.—Paragraph 
(1) of section 562(e), as amended by section 302, is 
amended— 
(A) by striking ‘‘deduction, the earnings’’ 
and inserting the following: ‘‘deduction— 
‘‘(A) the earnings’’, 
(B) by striking the period at the end and 
inserting ‘‘, and’’, and 
(C) by adding at the end the following new 
subparagraph: 
‘‘(B) section 857(d)(1) shall be applied 
without regard to subparagraph (B) thereof.’’. 
(3) CONFORMING
AMENDMENTS.—Subsection 
(d) of section 857 is amended by adding at the end 
the following new paragraphs: 
‘‘(4) REAL ESTATE INVESTMENT TRUST.—For 
purposes of this subsection, the term ‘real estate in-
vestment trust’ includes a domestic corporation, 
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trust, or association which is a real estate invest-
ment trust determined without regard to the require-
ments of subsection (a). 
‘‘(5) SPECIAL RULES FOR DETERMINING EARN-
INGS AND PROFITS FOR PURPOSES OF THE DEDUC-
TION FOR DIVIDENDS PAID.—For special rules for 
determining the earnings and profits of a real estate 
investment trust for purposes of the deduction for 
dividends paid, see section 562(e)(1).’’. 
(b) TREATMENT OF GAIN ON SALES OF REAL PROP-
ERTY.—Subparagraph (A) of section 562(e)(1), as amend-
ed by section 202 and subsection (a), is amended to read 
as follows: 
‘‘(A) the earnings and profits of such trust 
for any taxable year (but not its accumulated 
earnings) shall be increased by the amount of 
gain (if any) on the sale or exchange of real 
property which is taken into account in deter-
mining the taxable income of such trust for 
such taxable year (and not otherwise taken into 
account in determining such earnings and prof-
its), and’’. 
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(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
Æ 
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