Instructions For Form 1120-Reit - 2006 (Page 6 of 13) in pdf

interest income from certain below-market-rate

include the losses on line 18, Form

Item D. Date REIT

loans. See section 7872 for details.

1120-REIT). Show the partnership’s name,

Established

address, and EIN on a separate statement

Note. Report tax-exempt interest income on

attached to this return. If the amount entered is

Form 1120-REIT, Schedule K, item 8. Also, if

If the REIT is a corporation under state or local

from more than one partnership, identify the

required, include the same amount on

law, enter the date incorporated. If it is a trust

amount from each partnership.

Schedule M-1, line 7.

or association, enter the date organized.

Deductions

Line 3. Gross rents. Include the following:

Item E. Total Assets

•

Charges for customary services that may

Limitations on Deductions

qualify as rents from real property are

Enter the REIT’s total assets (as determined by

described in Regulations section 1.856-4(b)(1).

the accounting method regularly used in

Section 263A uniform capitalization rules.

For tax years beginning after October 22,

keeping its books and records) at the end of

The uniform capitalization rules of section

2004, the customary services exception under

the tax year. If there are no assets at the end

263A generally require REITs to capitalize

section 857(b)(7)(B)(ii) was eliminated and

of the tax year, enter -0-.

certain costs directly or indirectly (including

replaced with an existing “safe harbor.”

taxes) allocable to real or tangible personal

Services customarily furnished to tenants of a

Item F. Final Return, Name

property constructed or improved by the REIT.

REIT include parking facilities. See Rev. Rul.

Change, Address Change, or

For more details on the uniform

2004-24, which is on page 550 of I.R.B.

capitalization rules, see Regulations sections

2004-10, for guidance to determine whether

Amended Return

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

amounts received by a REIT that provides

•

section 1.263A-4 for rules for property

If this is the REIT’s final return, and it will no

parking facilities at its rental real properties

produced in a farming business.

longer exist, check the “Final return” box. See

qualify as rents from real property.

•

the instructions for Termination of Election.

Transactions between related taxpayers.

Rent from personal property leased under or

•

If the REIT has changed its name since it

Generally, an accrual basis taxpayer may only

with a lease of real property (but only if the rent

last filed a return, check the box for “Name

deduct business expenses and interest owed

from the personal property does not exceed

change.” Generally, a REIT also must have

to a related party in the year the payment is

15% of the total rent for the tax year charged

amended its articles of incorporation and filed

included in the income of the related party. See

for both the real and personal property under

the amendment with the state in which it was

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

such lease). Figure the percentage of rents

incorporated.

limitations on deductions for unpaid interest

from personal property by comparing the FMV

•

If the REIT has changed its address since it

and expenses.

of the personal rental property to the FMV of

last filed a return (including a change to an “in

the total rental property. See section 856(d)(1)

Golden parachute payments. A portion of

care of” address), check the box for “Address

for details.

the payments made by a REIT to key

•

change.”

Rent from a taxable REIT subsidiary (TRS)

personnel that exceeds their usual

either: (a) where at least 90% of the space at

compensation may not be deductible. This

Note. If a change in address occurs after the

issue is leased to third parties at rents

occurs when the REIT has an agreement

return is filed, use Form 8822, Change of

comparable to the rent paid by the other

Address, to notify the IRS of the new address.

(golden parachute) with these key employees

•

tenants of the REIT for comparable space; or

to pay them these excessive amounts if control

If the REIT is amending its return, check the

(b) for certain lodging facilities operated by an

of the REIT changes. See section 280G and

box for “Amended Return,” complete the entire

eligible independent contractor. For more

Regulations section 1.280G-1.

return, correct the appropriate lines with the

information, including definitions and additional

new information, and refigure the REIT’s tax

Business startup expenses. Business

requirements, see sections 856(d)(8) and

liability. Attach a statement that explains the

start-up and organizational costs must be

856(d)(9). Also, see Rev. Proc. 2003-66 for the

reason for the amendments and identifies the

capitalized unless an election is made to

special rules on rents paid to a REIT by certain

lines being changed on the amended return.

deduct or amortize them. For costs paid or

joint ventures that include a TRS.

incurred before October 23, 2004, the REIT

Item G. Type of REIT

See section 856(d)(2) for amounts excluded

must capitalize them unless it elects to

from “rents from real property.”

amortize these costs over a period of 60

Check the appropriate box to indicate whether

months or more.

Line 4. Other gross rents. Enter the gross

you are filing a return for a “Mortgage REIT” or

For costs paid or incurred after October 22,

amount received for renting property not

an “Equity REIT.” If the primary source of gross

2004, the following rules apply separately to

receipts is derived from mortgage interest and

included on line 3.

each category of costs.

fees, check the “Mortgage” box. Otherwise,

Line 5. Capital gain net income. Every sale

•

The REIT can elect to deduct up to $5,000 of

check the “Equity” box.

or exchange of a capital asset must be

such costs for the year the REIT begins

reported in detail on Schedule D (Form 1120),

business operations.

Capital Gains and Losses, even if there is no

•

The $5,000 deduction is reduced (but not

Part I—Real Estate

gain or loss.

below zero) by the amount the total costs

Investment Trust Taxable

Line 7. Other income. Enter any other

exceed $50,000. If the total costs are $55,000

taxable income not reported on lines 1 through

or more, the deduction is reduced to zero.

Income

•

6, except amounts that must be reported in

If the election is made, any costs that are not

Part II or IV. List the type and amount of

Include in Part I the REIT’s share of gross

deductible must be amortized ratably over a

income on an attached schedule. If the REIT

income from partnerships in which the REIT is

180-month period beginning with the month the

has only one item of other income, describe it

a partner, and the deductions attributable to

REIT begins business operations.

in parentheses on line 7. Examples of other

the gross income items. See Regulations

In all cases, the amortization period begins

income to report on line 7 are:

section 1.856-3(g).

the month the corporation begins business

•

Amounts received or accrued as

Real estate investment trust taxable income

operations. For more details on the election for

consideration for entering into agreements to

does not include the following:

business start-up and organizational costs, see

make real property loans or to purchase or

•

Gross income, gains, losses, and deductions

Pub. 535.

lease real property.

from foreclosure property (defined in section

•

For more details on the election for

Recoveries of bad debts deducted in prior

856(e)). If the aggregate of such amounts

business start-up costs, see section 195 and

years under the specific charge-off method.

results in net income, report these amounts in

•

attach the statement required by Regulations

Refunds of taxes deducted in prior years if

Part II.

section 1.195-1(b). For more details on the

they reduced income subject to tax in the year

•

Income or deductions from any prohibited

election for organizational costs, see section

deducted (see section 111). Do not offset

transaction (defined in section 857(b)(6))

248 and attach the statement required by

current year taxes against tax refunds.

resulting in a gain. Report these amounts in

•

Regulations section 1.248-1(c). Report the

Any deduction previously taken under

Part IV.

deductible amount of these costs and any

section 179A that is subject to recapture. The

amortization on line 18. For amortization that

REIT must recapture the benefit of any

Income

begins during the 2006 tax year, complete and

allowable deduction for clean-fuel vehicle

Line 1. Dividends. Enter the total amount of

attach Form 4562.

property (or clean-fuel vehicle refueling

dividends received during the tax year.

property), if the property later ceases to qualify.

Passive activity limitations. Limitations on

Line 2. Interest. Enter taxable interest on U.S.

See Regulations section 1.179A-1 for details.

passive activity losses and credits (for the first

•

obligations and on loans, notes, mortgages,

Ordinary income from trade or business

tax year as a REIT) under section 469 apply to

bonds, bank deposits, corporate bonds, tax

activities of a partnership (from Schedule K-1

REITs that are closely held (as defined in

refunds, etc. Do not offset interest expense

(Form 1065 or 1065-B)). Do not offset ordinary

section 856(h)). REITs subject to the passive

against interest income. Special rules apply to

losses against ordinary income. Instead,

activity limitations must complete Form 8810 to

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Instructions For Form 1120-Reit - 2006 Page 6

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