Instructions For Form 1120-Reit - 2009 (Page 8 of 17) in pdf

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Rent from a taxable REIT subsidiary

the income is deferred and ratably

180-month period, beginning with the

(TRS) either (a) where at least 90% of the

included in income over the 5-year period

month the REIT begins business. The

space at issue is leased to third parties at

beginning with:

REIT is not required to attach a statement

rents comparable to the rent paid by the

or specifically identify the amount

1. For a reacquisition occurring in

other tenants of the REIT for comparable

deducted in order for the election to be

2009, the fifth tax year following the tax

space; or (b) for certain lodging facilities

effective. The REIT can choose to forgo

year in which the reacquisition occurs,

or health care property operated by an

the deduction and instead elect to

and

eligible independent contractor. For more

capitalize all such costs. The election to

2. For a reacquisition occurring in

information, including definitions and

deduct or capitalize costs is irrevocable.

2010, the fourth tax year following the tax

additional requirements, see sections

See Temporary Regulations sections

year in which the reacquisition occurs.

856(d)(8) and 856(d)(9). Also, see Rev.

1.195-1T and 1.248-1T.

To make the election, attach a

Proc. 2003-66, 2003-33 I.R.B. 364 for the

For business start-up and

statement to the REIT’s return for the tax

special rules on rents paid to a REIT by

organizational costs paid or incurred after

year in which the applicable reacquisition

certain joint ventures that include a TRS.

October 22, 2004, and before September

occurs. The statement must clearly

9, 2008, a REIT can elect to deduct up to

See section 856(d)(2) for amounts

identify the applicable instrument and

$5,000 of such costs for the year it begins

excluded from “rents from real property.”

include the amount of income to which

business (otherwise the REIT must

Line 4. Other gross rents. Enter the

the election applies. Once made, the

capitalize all such costs). The $5,000

gross amount received for renting

election is irrevocable. For more

deduction is reduced by the amount the

information, see section 108(i) and Rev.

property not included on line 3.

total cost exceeds $50,000. If the total

Proc. 2009-37, 2009-36 I.R.B. 309.

Line 5. Capital gain net income. Every

costs are $55,000 or more, the deduction

sale or exchange of a capital asset must

Deductions

is reduced to zero. Any costs not

be reported in detail on Schedule D (Form

deducted must be amortized ratably over

1120), Capital Gains and Losses, even if

Limitations on Deductions

a 180-month period, beginning with the

there is no gain or loss.

month the REIT begins business. If the

Section 263A uniform capitalization

Line 7. Other income. Enter any other

election is made, the REIT must attach

rules. The uniform capitalization rules of

taxable income not reported on lines 1

any statement required by Regulations

section 263A generally require REITs to

through 6, except amounts that must be

sections 1.195-1(b) and 1.248-1(c) (as in

capitalize certain costs directly or

reported in Part II or IV. List the type and

effect before September 8, 2008).

indirectly (including taxes) allocable to

amount of income on an attached

However, the REIT can apply the

real or tangible personal property

schedule. If the REIT has only one item of

provisions of Temporary Regulations

constructed or improved by the REIT.

other income, describe it in parentheses

sections 1.195-1T and 1.248-1T to all

For more details on the uniform

on line 7. Examples of other income to

expenses paid or incurred after October

capitalization rules, see Regulations

report on line 7 are:

22, 2004, provided the period of

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sections 1.263A-1 through 1.263A-3. See

Amounts received or accrued as

limitations on assessment has not expired

Regulations section 1.263A-4 for rules for

consideration for entering into

for the year of the election. Otherwise the

property produced in a farming business.

agreements to make real property loans

provisions under Regulations sections

or to purchase or lease real property.

1.195-1(b) and 1.248-1(c) will apply.

Transactions between related

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Recoveries of bad debts deducted in

taxpayers. Generally, an accrual basis

For business start-up and

prior years under the specific charge-off

taxpayer may only deduct business

organizational costs paid or incurred

method.

expenses and interest owed to a related

before October 23, 2004, a REIT can

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Refunds of taxes deducted in prior

party in the year the payment is included

elect to amortize such costs over a period

years if they reduced income subject to

in the income of the related party. See

of 60-months or more.

tax in the year deducted (see section

sections 163(e)(3), 163(j), and 267 for

Report the deductible amount of such

111). Do not offset current year taxes

limitations on deductions for unpaid

costs and any amortization on line 18. For

against tax refunds.

interest and expenses.

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amortization that begins during the 2009

Any deduction previously taken under

Also see the Instructions for Form

tax year, complete and attach Form 4562.

section 179A that is subject to recapture.

8926, Disqualified Corporate Interest

For more details on business start-up and

The REIT must recapture the benefit of

Expense Disallowed Under Section 163(j)

organizational costs, see Pub. 535,

any allowable deduction for clean-fuel

and Related Information, with respect to

Business Expenses.

vehicle property (or clean-fuel vehicle

section 163(j).

Passive activity limitations. Limitations

refueling property), if the property later

Golden parachute payments. A portion

on passive activity losses and credits (for

ceases to qualify. See Regulations

of the payments made by a REIT to key

the first tax year as a REIT) under section

section 1.179A-1 for details.

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personnel that exceeds their usual

469 apply to REITs that are closely held

Ordinary income from trade or business

compensation may not be deductible.

(as defined in section 856(h)). REITs

activities of a partnership (from Schedule

This occurs when the REIT has an

subject to the passive activity limitations

K-1 (Form 1065 or 1065-B)). Do not offset

agreement (golden parachute) with these

must complete Form 8810 to compute

ordinary losses against ordinary income.

key employees to pay them these

their allowable passive activity loss and

Instead, include the losses on line 18,

excessive amounts if control of the REIT

credit. Before completing Form 8810, see

Form 1120-REIT). Show the partnership’s

changes. See section 280G and

Temporary Regulations section 1.163-8T,

name, address, and EIN on a separate

Regulations section 1.280G-1. Also see

for rules on allocating interest expense

statement attached to this return. If the

the instructions for line 9.

among activities.

amount entered is from more than one

partnership, identify the amount from

Business start-up and organizational

Reducing certain expenses for which

each partnership.

costs. For business start-up and

credits are allowable. For each credit

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Income from discharge of indebtedness

organizational costs paid or incurred after

listed below, the REIT must reduce the

for the repurchase of a debt instrument

September 8, 2008, a REIT can deduct

otherwise allowable deductions for

for less than its adjusted issue price.

up to $5,000 of such cost for the year it

expenses used to figure the credit by the

However, for a reacquisition of an

begins business (unless the REIT elects

amount of the current year credit. Do not

applicable debt instrument after

to capitalize all such costs). The $5,000

reduce the amount of the allowable

December 31, 2008, and before January

deduction is reduced by the amount the

deduction for any portion of the credit that

1, 2011, a REIT can elect, under section

total costs exceed $50,000. If the total

was passed through to the REIT from a

108(i), to defer the income from discharge

costs are $55,000 or more, the deduction

pass-through entity on Schedule K-1.

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of indebtedness in connection with the

is reduced to zero. Any cost not deducted

Employment credits. See the

election. If the REIT makes the election,

must be amortized ratably over a

instructions for line 10.

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Instructions For Form 1120-Reit - 2009 Page 8

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