Instructions For Form 1120-Reit - 2004 (Page 12 of 13) in pdf

Built-in Gains Tax

Line c. The REIT’s net unrealized built-in gain

subtracted from, the total for line 8. On the

is the amount, if any, by which the fair market

dotted line next to line 8, enter the amount of

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

value of the assets of the REIT at the

tax or interest, identify it as tax or interest, and

corporation becomes property of a REIT by

beginning of its first REIT year (or as of the

specify the Code section that applies.

either (a) the qualification of the C corporation

date the assets were acquired, for any asset

as a REIT or (b) the transfer of such property

with a basis determined by reference to its

to a REIT, then the REIT will be subject to the

basis (or the basis of any other property) in the

Schedule K—Other

built-in gain tax under section 1374 unless the

hands of a C corporation) exceeds the

C corporation elects deemed sale treatment on

Information

aggregate adjusted basis of such assets at that

the transferred property. If the C corporation

time.

does not make this election, the REIT must pay

Be sure to answer all the lines that apply to the

tax on the net recognized built-in gain during

Enter on line c the REIT’s net unrealized

REIT.

the 10-year period beginning on its first day as

built-in gain reduced by the net recognized

Question 3

a REIT or the day it acquired the property.

built-in gain for prior years. See sections

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

Recognized built-in gains and losses generally

Check the “Yes” box for question 3 if the REIT

retain their character (for example, ordinary

Line d. If the amount on line b exceeds the

is a subsidiary in a parent-subsidiary controlled

income or capital gain) and are treated the

amount on line a, the excess is treated as a

group (defined below), even if the REIT is a

same as other gains or losses of the REIT. The

recognized built-in gain in the succeeding tax

subsidiary member of one group and the

REIT’s tax on net recognized built-in gain is

year.

parent corporation of another.

treated as a loss incurred by the REIT during

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

Note. If the REIT is an “excluded member” of

the same tax year (see the instructions for line i

deduction. Generally, this is any net operating

a controlled group (see section 1563(b)(2)), it

of the Built-in Gains Tax Worksheet on this

loss carryforward or capital loss carryforward

is still considered a member of a controlled

page. See Regulations section 1.337(d)-7 for

(to the extent of net capital gain included in

group for this purpose.

details.

recognized built-in gain for the tax year) arising

Parent-subsidiary controlled group. The

in tax years for which the REIT was a C

Different rules apply to elections to be a

term “parent-subsidiary controlled group”

corporation. These loss carryforwards must be

REIT and transfers of property in a carryover

means one or more chains of corporations

used to reduce recognized built-in gain for the

basis transaction that occurred prior to January

connected through stock ownership (section

tax year to the greatest extent possible before

2, 2002. For REIT elections and property

1563(a)(1)). Both of the following requirements

they can be used to reduce real estate

transfers before this date, the C corporation is

must be met:

investment trust taxable income.

subject to deemed sale treatment on the

1. At least 80% of the total combined

transferred property unless the REIT elects

Line h. Credit carryforwards arising in tax

voting power of all classes of voting stock

section 1374 treatment. See Regulations

years for which the REIT was a C corporation

entitled to vote or at least 80% of the total

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

must be used to reduce the tax on net built-in

value of all classes of stock of each corporation

make the election and figure the tax for REIT

gain for the tax year to the greatest extent

in the group (except the parent) must be

elections and property transfers before this

possible before the credit carryforwards can be

owned by one or more of the other

date. The REIT may also rely on Regulations

used to reduce the tax on real estate

corporations in the group and

section 1.337(d)-5 for REIT elections and

investment trust taxable income.

2. The common parent must own at least

property transfers that occurred before January

Line i. The REIT’s tax on net recognized

80% of the total combined voting power of all

2, 2002.

built-in gain is treated as a loss sustained by

classes of stock entitled to vote or at least 80%

the REIT during the same tax year. Deduct the

Built-in Gains Tax Worksheet

of the total value of all classes of stock of one

tax attributable to:

instructions

or more of the other corporations in the group.

•

Ordinary gain as a deduction for taxes on

Stock owned directly by other members of the

Complete the worksheet on this page to figure

Form 1120-REIT, line 14.

group is not counted when computing the

•

the built-in gains tax under Regulations section

Short-term capital gain as a short-term

voting power or value.

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

capital loss on Schedule D (Form 1120), line 1.

•

Long-term capital gain as a long-term capital

Line a. Enter the amount that would be the

See section 1563(d)(1) for the definition of

loss on Schedule D (Form 1120), line 6.

taxable income of the REIT for the tax year if

“stock” for purposes of determining stock

only recognized built-in gain, recognized

How to report. If the REIT checked the

ownership above.

“Other” box, attach a schedule showing the

built-in loss, and recognized built-in gain

Question 5

carryover were taken into account, reduced by

computation of each item included in the total

any portion of the REIT’s recognized built-in

for line 7, Schedule J. In addition, identify (a)

Check the “Yes” box if one foreign person

gain from:

the applicable Code section, (b) the type of

owned at least 25% of (a) the total voting

•

Net income from foreclosure property,

taxes or interest, and (c) enter the amount of

power of all classes of stock of the REIT

•

Amounts subject to tax for failure to meet

tax or interest.

entitled to vote, or (b) the total value of all

certain source-of-income requirements under

classes of stock of the REIT.

Line 8 –Total Tax

section 857(b)(5) computed in accordance with

The constructive ownership rules of section

Include any deferred tax on the termination of a

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

•

318 apply in determining if a REIT is foreign

section 1294 election applicable to

Net income from prohibited transactions

owned. See section 6038A(c)(5) and the

under section 857(b)(6), and

shareholders in a qualified electing fund in the

•

related regulations.

Amounts subject to tax under section

amount entered on line 8. See Form 8621, Part

857(b)(7).

V, and How to report, below.

Enter on line 5a the percentage owned by

the foreign person specified in line 5. On line

Subtract from the total for line 8 the

Line b. Add the amounts shown on Form

5b, enter the name of the owner’s country.

deferred tax on the REIT’s share of the

1120-REIT, page 1, line 20; Form 1120-REIT,

undistributed earnings of a qualified electing

Part II, line 5; and Form 2438, line 11. Subtract

Note. If there is more than one 25%-or-more

fund (see Form 8621, Part II).

from the total the amount on Form 1120-REIT,

foreign owner, complete lines 5a and 5b for the

line 21c. Enter the result on line b of the

How to report. Attach a schedule showing the

foreign person with the highest percentage of

worksheet on this page.

computation of each item included in, or

ownership.

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . h.

Tax. Subtract line h from line g ( if zero or less, enter -0-). Enter here and include on line 7 of

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

-12-

Instructions For Form 1120-Reit - 2004 Page 12

Related Articles

Related forms

Related Categories