Instructions For Form 1120-Reit - 2006 (Page 7 of 13) in pdf

compute their allowable passive activity loss

wages deductible elsewhere on the return,

Line 15. Interest.

and credit. Before completing Form 8810, see

such as elective contributions to a section

Interest expense cannot be used to

Temporary Regulations section 1.163-8T, for

401(k) cash or deferred arrangement, or

offset interest income.

rules on allocating interest expense among

amounts contributed under a salary reduction

CAUTION

activities.

SEP agreement or a SIMPLE IRA plan.

The deduction for interest is limited when

Reducing certain expenses for which

If the REIT provided taxable fringe

the REIT is a policyholder or beneficiary with

credits are allowable. For each credit listed

benefits to its employees, such as

respect to a life insurance, endowment, or

below, the REIT must reduce the otherwise

personal use of a car, do not deduct as

CAUTION

annuity contract issued after June 8, 1997. For

allowable deductions for expenses used to

wages the amounts allocated for depreciation

details, see section 264(f). Attach a statement

figure the credit by the amount of the current

and other expenses claimed on lines 16 and

showing the computation of the deduction.

year credit. Do not reduce the amount of the

18.

allowable deduction for any portion of the credit

The REIT must make an interest allocation

that was passed through to the REIT from a

if the proceeds of a loan were used for more

Line 11. Repairs and maintenance. Enter the

pass-through entity on Schedule K-1.

than one purpose (for example, to purchase a

cost of incidental repairs and maintenance,

•

Employment credits. See the instructions for

portfolio investment and to acquire an interest

such as labor and supplies, that do not add to

line 10.

in a passive activity). See Temporary

the value of the property or appreciably prolong

•

Disabled access credit.

Regulations section 1.163-8T for the interest

its life. New buildings, machinery, or

•

Employer credit for social security and

allocation rules.

permanent improvements that increase the

Medicare taxes paid on certain employee tips.

value of the property are not deductible. They

The following interest is not deductible:

•

Credit for small employer pension plan

•

must be depreciated or amortized.

Interest on indebtedness incurred or

startup costs.

continued to purchase or carry obligations if

•

Credit for employer-provided childcare

Line 12. Bad debts. Enter the total debts that

the interest is wholly exempt from income tax.

facilities and services.

became worthless in whole or in part during the

For exceptions, see section 265(b).

tax year. A cash basis taxpayer may not claim

•

If the REIT is eligible to claim any of these

For cash basis taxpayers, prepaid interest

a bad debt deduction unless the amount was

credits, figure each current year credit before

allocable to years following the current tax year

previously included in income.

figuring the deduction for expenses on which

(for example, a cash basis calendar year

the credit is based.

taxpayer who in 2006 prepaid interest allocable

Line 13. Rents. If the REIT rented or leased a

to any period after 2006 can deduct only the

Line 9. Compensation of officers. Do not

vehicle, enter the total annual rent or lease

amount allocable to 2006).

include compensation deductible elsewhere on

expense paid or incurred during the year. Also

•

Interest and carrying charges on straddles.

the return, such as elective contributions to a

complete Part V of Form 4562, Depreciation

Generally, these amounts must be capitalized.

section 401(k) cash or deferred arrangement,

and Amortization. If the REIT leased a vehicle

See section 263(g).

or amounts contributed under a salary

for a term of 30 days or more, the deduction for

•

Interest paid or incurred on any portion of an

reduction SEP agreement or a SIMPLE IRA

the vehicle lease expense may have to be

underpayment of tax that is attributable to an

plan.

reduced by an amount called the inclusion

understatement arising from an undisclosed

amount.

Disallowance of deduction for employee

listed transaction or an undisclosed reportable

compensation in excess of $1 million.

The REIT may have an inclusion amount if:

avoidance transaction (other than a listed

Publicly held REITs may not deduct

transaction) entered into in tax years beginning

compensation to a “covered employee” to the

And the vehicle’s

after October 22, 2004.

extent that the compensation exceeds $1

FMV on the first day

Special rules apply to:

million. Generally, a covered employee is:

of the lease

•

Interest on which no tax is imposed (see

The chief executive officer of the REIT (or an

The lease term began:

exceeded:

section 163(j));

individual acting in that capacity) as of the end

•

After 12/31/04 but before 1/1/07 . . . . . . .

$15,200

Foregone interest on certain

of the tax year; or

•

below-market-rate loans (see section 7872);

An employee whose total compensation

After 12/31/03 but before 1/1/05 . . . . . . .

$17,500

and

must be reported to shareholders under the

After 12/31/02 but before 1/1/04 . . . . . . .

$18,000

•

Original issue discount on certain high-yield

Securities Exchange Act of 1934 because the

After 12/31/98 but before 1/1/03 . . . . . . .

$15,500

discount obligations. (See section 163(e) to

employee is among the four highest

If the lease term began before January 1, 1999, see Pub. 463,

figure the disqualified portion.)

compensated officers for that tax year (other

Travel, Entertainment, Gift, and Car Expenses, to find out if the

than the chief executive officer).

REIT has an inclusion amount. The inclusion amount for lease

Line 16. Depreciation. Besides depreciation,

terms beginning in 2007 will be published in the Internal

include on line 16 the part of the cost that the

For this purpose, compensation does not

Revenue Bulletin in early 2007.

REIT elected to expense under section 179 for

include the following:

•

certain property placed in service during tax

Income from certain employee trusts,

year 2006 or carried over from 2005. See Form

annuity plans, or pensions and

See Pub. 463 for instructions on figuring the

•

4562 and its instructions.

Any benefit paid to an employee that is

inclusion amount.

excluded from the employee’s income.

Line 18. Other deductions.

Line 14. Taxes and licenses. Enter taxes

The deduction limit does not apply to:

paid or incurred during the tax year, but do not

Penalties or fines paid to any

•

Commissions based on individual

include the following:

government agency or instrumentality

•

performance,

Federal income taxes (except for the tax

because of a violation of a law are not

CAUTION

•

Qualified performance-based compensation,

imposed on net recognized built-in gain

deductible. See Publication 535, Business

and

allocable to ordinary income).

Expenses, for additional information.

•

Income payable under a written, binding

Foreign or U.S. possession income taxes if a

Attach a schedule, listing by type and

contract in effect on February 17, 1993.

tax credit is claimed (however, see the

amount, all allowable deductions that are not

Instructions for Form 5735 for special rules for

The $1-million limit is reduced by amounts

deductible elsewhere on the return. Enter the

possession income taxes).

disallowed as excess parachute payments

total on line 18. Include amortization and

•

Taxes not imposed on the REIT.

under section 280G. For details, see section

organization expenses. Generally, a deduction

•

Taxes, including state or local sales taxes,

162(m) and Regulations section 1.162-27.

may not be taken for any amount that is

that are paid or incurred in connection with an

Line 10. Salaries and wages. Enter the total

allocable to a class of exempt income. See

acquisition or disposition of property (these

salaries and wages paid for the tax year,

section 265(b) for exceptions.

taxes must be treated as a part of the cost of

reduced by the amount claimed on:

Examples of other deductions include:

•

the acquired property or, in the case of a

Form 5884, Work Opportunity Credit (line 2);

•

Amortization (see Form 4562).

•

disposition, as a reduction in the amount

•

Form 5884-A, Credits for Employers

Certain business start-up and organizational

realized on the disposition).

Affected by Hurricane Katrina, Rita, or Wilma

•

costs that the REIT elects to deduct.

Taxes assessed against local benefits that

and (Hurricane Katrina housing credit) (line 6);

•

Depletion. Attach Form T (Timber), Forest

•

increase the value of the property assessed

Form 8844, Empowerment Zone and

Activities Schedule, if a deduction for depletion

(such as for paving, etc.).

Renewal Community Employment Credit (line

•

of timber is taken.

Taxes deducted elsewhere on the return.

2);

•

Reforestation costs. The REIT can elect to

•

Excise taxes imposed under section 4981 on

Form 8845, Indian Employment Credit (line

deduct up to $10,000 of qualified reforestation

undistributed REIT income.

4); and

expenses paid or incurred after October 22,

•

Form 8861, Welfare-to-Work Credit (line 2).

See section 164(d) for apportionment of

2004, for each qualifying timber property. The

See the instructions for these forms for

taxes on real property between seller and

REIT can elect to amortize over 84 months any

more information. Do not include salaries and

purchaser.

amount not deducted.

-7-

Instructions For Form 1120-Reit - 2006 Page 7

Related Articles

Related forms

Related Categories