Instructions For Form 1120-Reit - 2010 (Page 15 of 17) in pdf

6. Interest due on deferred gain

For tax years beginning in 2009 or

which the fair market value of the assets

(section 1260(b)).

2010, no tax is imposed on the net

of the REIT at the beginning of its first

recognized built-in gain of a REIT

REIT year (or as of the date the assets

CAUTION

if the 7th year of the applicable

were acquired, for any asset with a basis

Built-in Gains Tax

recognition period ended before the tax

determined by reference to its basis (or

If, on or after January 2, 2002, property of

year. In figuring the amount to enter on

the basis of any other property) in the

a C corporation becomes property of a

line a, exclude any recognized built-in

hands of a C corporation) exceeds the

REIT by either: (a) the qualification of the

gains and recognized built-in losses

aggregate adjusted basis of such assets

C corporation as a REIT; or (b) the

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

at that time.

transfer of such property to a REIT, then

applicable recognition period ended

Enter on line c the REIT’s net

the REIT will be subject to the built-in

before the beginning of the tax year. This

unrealized built-in gain reduced by the net

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

corporation does not make this election,

Line d. If the amount on line b exceeds

recognized built-in gain in excess of the

the REIT must pay tax on the net

the amount on line a, the excess is

taxable income limitation;

recognized built-in gain during the

•

treated as a recognized built-in gain in the

Allocating your taxable income

10-year period beginning on its first day

succeeding tax year.

limitation (line b) between separate

as a REIT or the day it acquired the

groups of assets, as required by

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

property (for tax years beginning in 2009

Regulations section 1.1374-8(d);

deduction. Generally, this is any net

•

or 2010, see the Built-in Gains Tax

Figuring your net unrealized built-in

operating loss carryforward or capital loss

Worksheet Instructions below, for an

gain limitation in any subsequent year

carryforward (to the extent of the net

exception).

(line c); or

capital gain included in recognized built-in

•

Figuring your section 1374(b)(2)

gain for the tax year) arising in tax years

Recognized built-in gains and losses

deduction (line e) in any subsequent year.

for which the REIT was a C corporation.

generally retain their character (for

These loss carryforwards must be used to

For these purposes, treat net

example, ordinary income or capital gain)

reduce recognized built-in gain for the tax

recognized built-in gain excluded from

and are treated the same as other gains

year to the greatest extent possible

line a as if the full amount had been

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

before they can be used to reduce the

entered on line a in the current tax year.

net recognized built-in gain is treated as a

REIT’s taxable income.

loss incurred by the REIT during the

Line a. Enter the amount that would be

same tax year (see the instructions for

Line h. Credit carryforwards arising in

the taxable income of the REIT for the tax

line i of the Built-in Gains Tax Worksheet

tax years for which the REIT was a C

year if only recognized built-in gain,

on this page). See Regulations section

corporation must be used to reduce the

recognized built-in loss, and recognized

1.337(d)-7 for details.

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

built-in gain carryover were taken into

the greatest extent possible before the

account, reduced by any portion of the

Different rules apply to elections to be

credit carryforwards can be used to

REIT’s recognized built-in gain from:

a REIT and transfers of property in a

•

reduce the tax on the REIT’s taxable

Net income from foreclosure property,

carryover basis transaction that occurred

•

income.

Amounts subject to tax for failure to

prior to January 2, 2002. For REIT

meet certain source-of-income

Note. If the REIT makes the election, the

elections and property transfers before

requirements under section 857(b)(5)

unused research and minimum tax credits

this date, the C corporation is subject to

computed in accordance with Regulations

must first be used to reduce the tax on

deemed sale treatment on the transferred

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

net built-in gain for the tax year to the

property unless the REIT elects section

•

Net income from prohibited

greatest extent possible. Any remaining

1374 treatment. See Regulations section

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

unused research and minimum tax credits

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

•

Amounts subject to tax under section

are included on line 24g to reduce REIT’s

the election and figure the tax for REIT

857(b)(7).

income tax. For more information, see the

elections and property transfers before

instructions for line 24g.

Line b. Add the amounts shown on:

this date. The REIT may also rely on

•

Form 1120-REIT, page 1, line 20;

Regulations section 1.337(d)-5 for REIT

Line i. The REIT’s tax on net recognized

•

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

elections and property transfers that

built-in gain is treated as a loss sustained

•

Form 2438, line 11.

occurred before January 2, 2002.

by the REIT during the same tax year.

Subtract from the total the amount on

Deduct the tax attributable to:

Built-in Gains Tax Worksheet

Form 1120-REIT, line 21c. Enter the

•

Ordinary gain as a deduction for taxes

instructions

result on line b of the Built-in Gains Tax

on Form 1120-REIT, line 14.

Worksheet below.

•

Complete the worksheet below to figure

Short-term capital gain as a short-term

the built-in gains tax under Regulations

Line c. The REIT’s net unrealized

capital loss on Schedule D (Form 1120),

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

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

line 1.

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.

-15-

Instructions For Form 1120-Reit - 2010 Page 15

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