Instructions For Form 1120-Reit - 2009 (Page 15 of 17) in pdf

gains tax under section 1374 unless the C

exclusion does not apply, however, for

recognized built-in gain for prior years.

corporation elects deemed sale treatment

the following purposes.

See sections 1374(c)(2) and (d)(1).

•

on the transferred property. If the C

Figuring the carryover of the net

Line d. If the amount on line b exceeds

corporation does not make this election,

recognized built-in gain in excess of the

the amount on line a, the excess is

the REIT must pay tax on the net

taxable income limitation;

treated as a recognized built-in gain in the

•

recognized built-in gain during the

Allocating your taxable income

succeeding tax year.

10-year period beginning on its first day

limitation (line b) between separate

Line e. Enter the section 1374(b)(2)

as a REIT or the day it acquired the

groups of assets, as required by

deduction. Generally, this is any net

property (for tax years beginning in 2009

Regulations section 1.1374-8(d);

operating loss carryforward or capital loss

•

or 2010, see the Built-in Gains Tax

Figuring your net unrealized built-in

carryforward (to the extent of the net

Worksheet Instructions below, for an

gain limitation in any subsequent year

capital gain included in recognized built-in

exception).

(line c); or

gain for the tax year) arising in tax years

•

Figuring your section 1374(b)(2)

for which the REIT was a C corporation.

Recognized built-in gains and losses

deduction (line e) in any subsequent year.

These loss carryforwards must be used to

generally retain their character (for

For these purposes, treat net

reduce recognized built-in gain for the tax

example, ordinary income or capital gain)

recognized built-in gain excluded from

year to the greatest extent possible

and are treated the same as other gains

line a as if the full amount had been

before they can be used to reduce the

or losses of the REIT. The REIT’s tax on

entered on line a in the current tax year.

REIT’s taxable income.

net recognized built-in gain is treated as a

loss incurred by the REIT during the

Line h. Credit carryforwards arising in

Line a. Enter the amount that would be

same tax year (see the instructions for

tax years for which the REIT was a C

the taxable income of the REIT for the tax

line i of the Built-in Gains Tax Worksheet

corporation must be used to reduce the

year if only recognized built-in gain,

on this page). See Regulations section

tax on net built-in gain for the tax year to

recognized built-in loss, and recognized

1.337(d)-7 for details.

the greatest extent possible before the

built-in gain carryover were taken into

credit carryforwards can be used to

account, reduced by any portion of the

Different rules apply to elections to be

reduce the tax on the REIT’s taxable

REIT’s recognized built-in gain from:

a REIT and transfers of property in a

•

income.

Net income from foreclosure property,

carryover basis transaction that occurred

•

Amounts subject to tax for failure to

Note. The REIT can elect to claim

prior to January 2, 2002. For REIT

meet certain source-of-income

certain unused research and minimum tax

elections and property transfers before

requirements under section 857(b)(5)

credits instead of claiming any additional

this date, the C corporation is subject to

computed in accordance with Regulations

first-year special depreciation allowance

deemed sale treatment on the transferred

section 1.337(d)-6(c)(2),

for eligible qualified property or qualified

property unless the REIT elects section

•

Net income from prohibited

extension property placed in service

1374 treatment. See Regulations section

transactions under section 857(b)(6), and

during the tax year. If the REIT makes the

1.337(d)-6 for information on how to make

•

Amounts subject to tax under section

election, the unused research and

the election and figure the tax for REIT

857(b)(7).

minimum tax credits must first be used to

elections and property transfers before

reduce the tax on net built-in gain for the

this date. The REIT may also rely on

Line b. Add the amounts shown on:

•

tax year to the greatest extent possible.

Regulations section 1.337(d)-5 for REIT

Form 1120-REIT, page 1, line 20;

•

Any remaining unused research and

elections and property transfers that

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

•

minimum tax credits are included on line

occurred before January 2, 2002.

Form 2438, line 11.

24g to reduce REIT’s income tax. For

Subtract from the total the amount on

more information, see the instructions for

Built-in Gains Tax Worksheet

Form 1120-REIT, line 21c. Enter the

line 24g. Also, see the Instructions for

instructions

result on line b of the Built-in Gains Tax

Forms 3800 and 8827, Rev. Proc.

Worksheet below.

Complete the worksheet below to figure

2008-65, 2008-44 I.R.B. 1082, and Rev.

the built-in gains tax under Regulations

Line c. The REIT’s net unrealized

Proc. 2009-33, 2009-29 I.R.B.150.

section 1.337(d)-7 or 1.337(d)-6.

built-in gain is the amount, if any, by

Line i. The REIT’s tax on net recognized

which the fair market value of the assets

For tax years beginning in 2009 or

built-in gain is treated as a loss sustained

of the REIT at the beginning of its first

2010, no tax is imposed on the net

by the REIT during the same tax year.

REIT year (or as of the date the assets

recognized built-in gain of a REIT

Deduct the tax attributable to:

CAUTION

were acquired, for any asset with a basis

•

if the 7th year of the applicable

Ordinary gain as a deduction for taxes

determined by reference to its basis (or

recognition period ended before the tax

on Form 1120-REIT, line 14.

the basis of any other property) in the

•

year. In figuring the amount to enter on

Short-term capital gain as a short-term

hands of a C corporation) exceeds the

line a, exclude any recognized built-in

capital loss on Schedule D (Form 1120),

aggregate adjusted basis of such assets

gains and recognized built-in losses

line 1.

at that time.

•

arising in the tax year if the 7th year of the

Long-term capital gain as a long-term

applicable recognition period ended

Enter on line c the REIT’s net

capital loss on Schedule D (Form 1120),

before the beginning of the tax year. This

unrealized built-in gain reduced by the net

line 6.

Built-in Gains Tax Worksheet (keep for your records)

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

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

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 lines a, b, or c) . . . . . . . . . . . . . . . . . . . . . . . . d.

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

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

g. Enter 35% of line f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . g.

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

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

Tax. Subtract line h from line g (if zero or less, enter -0-). Enter here and include on line 6 of

Schedule J (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i.

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Instructions For Form 1120-Reit - 2009 Page 15

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