Instructions For Form 1120-Reit - 2004 (Page 6 of 13) in pdf

amounts received by a REIT that provides

to a related party in the year the payment is

Item E. Total Assets

parking facilities at its rental real properties

included in the income of the related party. See

Enter the REIT’s total assets (as determined by

qualify as rents from real property.

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

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the accounting method regularly used in

Rent from personal property leased under or

limitations on deductions for unpaid interest

keeping its books and records) at the end of

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

and expenses.

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

from the personal property does not exceed

Golden parachute payments. A portion of

of the tax year, enter -0-.

15% of the total rent for the tax year charged

the payments made by a REIT to key

for both the real and personal property under

personnel that exceeds their usual

Item F. Final Return, Name

such lease). Figure the percentage of rents

compensation may not be deductible. This

from personal property by comparing the fair

Change, Address Change, or

occurs when the REIT has an agreement

market value of the personal rental property to

(golden parachute) with these key employees

Amended Return

the fair market value of the total rental

to pay them these excessive amounts if control

property. See section 856(d)(1) for details.

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of the REIT changes. See section 280G and

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If the REIT ceases to exist, file Form

Rent from a taxable REIT subsidiary (TRS)

Regulations section 1.280G-1.

1120-REIT and check the “Final return” box.

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

See Termination of Election on page 2.

Business startup expenses. Business

issue is leased to third parties at rents

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If the REIT has changed its name since it

start-up and organizational costs must be

comparable to the rent paid by the other

last filed a return, check the box for “Name

capitalized unless an election is made to

tenants of the REIT for comparable space or

change.” Generally, a REIT also must have

deduct or amortize them. For costs paid or

(b) for certain lodging facilities operated by an

amended its articles of incorporation and filed

incurred before October 23, 2004, the REIT

eligible independent contractor. For more

the amendment with the state in which it was

must capitalize them unless it elects to

information, including definitions and additional

incorporated.

amortize these costs over a period of 60

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

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If the REIT has changed its address since it

months or more. For costs paid or incurred

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

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

after October 22, 2004, the following rules

special rules on rents paid to a REIT by certain

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

apply separately to each category of costs.

joint ventures that include a TRS.

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change.”

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

Note. Act section 243(b) of the “American

such costs for the year the REIT begins

Note. If a change in address occurs after the

Jobs Creation Act (AJCA)” clarifies the limited

business operations.

return is filed, use Form 8822, Change of

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rental exception for taxable REIT subsidiaries

The $5,000 deduction is reduced (but not

Address, to notify the IRS of the new address.

by testing the comparability of rents at certain

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below zero) by the amount the total costs

If the REIT is amending its return, check the

times during the lease term. For additional

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

box for “Amended Return,” complete the entire

information see section 856(d)(8) as amended

or more, the deduction is reduced to zero.

return, correct the appropriate lines with the

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by the AJCA.

If the election is made, any costs that are not

new information, and refigure the REIT’s tax

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

deductible must be amortized ratably over a

liability. Attach a statement that explains the

from “rents from real property.”

180-month period beginning with the month the

reason for the amendments and identifies the

REIT begins business operations.

lines being changed on the amended return.

Line 4. Other gross rents. Enter the gross

amount received for renting property not

For more details on the election for

included on line 3.

business start-up costs, see section 195 and

Part I—Real Estate

attach the statement required by Regulations

Line 5. Capital gain net income. Every sale

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

or exchange of a capital asset must be

Investment Trust Taxable

election for organizational costs, see section

reported in detail on Schedule D (Form 1120),

248 and attach the statement required by

Income

Capital Gains and Losses, even if there is no

Regulations section 1.248-1(c). Report the

gain or loss.

Include in Part I the REIT’s share of gross

deductible amount of these costs and any

Line 7. Other income. Enter any other

income from partnerships in which the REIT is

amortization on line 18. For amortization that

taxable income not reported on lines 1 through

a partner, and the deductions attributable to

begins during the 2004 tax year, complete and

6, except amounts that must be reported in

the gross income items. See Regulations

attach Form 4562.

Part II or IV. List the type and amount of

section 1.856-3(g).

Passive activity limitations. Limitations on

income on an attached schedule. If the REIT

Do not include the following in

passive activity losses and credits (for the first

has only one item of other income, describe it

Part I:

tax year as a REIT) under section 469 apply to

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in parentheses on line 7. Examples of other

Gross income, gains, losses, and deductions

REITs that are closely held (as defined in

income to report on line 7 are:

from foreclosure property (defined in section

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

Amounts received or accrued as

856(e)) if the aggregate of such amounts

activity limitations must complete Form 8810 to

consideration for entering into agreements to

results in net income. Report these amounts in

compute their allowable passive activity loss

make real property loans or to purchase or

Part II.

and credit. Before completing Form 8810, see

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lease real property.

Income or deductions from any prohibited

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Temporary Regulations section 1.163-8T, for

Recoveries of bad debts deducted in prior

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

rules on allocating interest expense among

years under the specific charge-off method.

resulting in a gain. Report these amounts in

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activities.

The amount of the credit for alcohol used as

Part IV.

fuel (determined without regard to the limitation

Reducing certain expenses for which

based on tax) that was entered on Form 6478,

Income

credits are allowable. For each credit listed

Credit for Alcohol Used as Fuel.

below, the REIT must reduce the otherwise

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Line 1. Dividends. Enter the total amount of

The amount included in income from Form

allowable deductions for expenses used to

dividends received during the tax year.

8864, Biodiesel Fuels Credit.

figure the credit by the amount of the current

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

Refunds of taxes deducted in prior years if

year credit.

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obligations and on loans, notes, mortgages,

they reduced income subject to tax in the year

Work opportunity credit.

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bonds, bank deposits, corporate bonds, tax

deducted (see section 111). Do not offset

Research credit.

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refunds, etc. Do not offset interest expense

current year taxes against tax refunds.

Orphan drug credit.

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against interest income. Special rules apply to

Any deduction previously taken under

Disabled access credit.

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interest income from certain below-market-rate

section 179A that is subject to recapture. The

Enhanced oil recovery credit.

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loans. See section 7872 for details.

REIT must recapture the benefit of any

Empowerment zone and renewal community

allowable deduction for clean-fuel vehicle

employment credit.

Note. Report tax-exempt interest income on

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property (or clean-fuel vehicle refueling

Indian employment credit.

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

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property), if the property later ceases to qualify.

Employer credit for social security and

required, include the same amount on

See Regulations section 1.179A-1 for details.

Medicare taxes paid on certain employee tips.

Schedule M-1, line 7.

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Welfare-to-work credit.

Line 3. Gross rents. Include the following:

Deductions

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Credit for small employer pension plan

Charges for customary services that may

startup costs.

qualify as rents from real property are

Limitations on Deductions

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Credit for employer-provided childcare

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

facilities and services.

Direct and indirect costs (including taxes)

For tax years beginning after October 22,

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New York Liberty Zone business employee

allocable to real or tangible personal

2004, the customary services exception under

credit.

property constructed or improved by the

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

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Low sulfur diesel fuel production credit.

taxpayer. These costs must be capitalized

replaced with an existing “safe harbor.”

according to section 263A.

Services customarily furnished to tenants of a

If the REIT has any of these credits, figure

REIT include parking facilities. See Rev. Rul.

Transactions between related taxpayers.

each current year credit before figuring the

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

Generally, an accrual basis taxpayer may only

deduction for expenses on which the credit is

2004-10, for guidance to determine whether

deduct business expenses and interest owed

based.

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Instructions For Form 1120-Reit - 2004 Page 6

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