Instructions For Form 1120-Reit - 2004 (Page 7 of 13) in pdf

Line 9. Compensation of officers. Do not

the vehicle lease expense may have to be

transaction) entered into in tax years beginning

include compensation deductible elsewhere on

reduced by an amount called the inclusion

after October 22, 2004.

the return, such as elective contributions to a

amount.

Special rules apply to:

•

section 401(k) cash or deferred arrangement,

Interest on which no tax is imposed (see

The REIT may have an inclusion amount if:

or amounts contributed under a salary

section 163(j));

•

reduction SEP agreement or a SIMPLE IRA

Foregone interest on certain

And the vehicle’s

plan.

FMV on the first day

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

Disallowance of deduction for employee

of the lease

and

•

compensation in excess of $1 million.

The lease term began:

exceeded:

Original issue discount on certain high-yield

Publicly held REITs may not deduct

discount obligations. (See section 163(e) to

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

$17,500

compensation to a “covered employee” to the

figure the disqualified portion.)

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

$18,000

extent that the compensation exceeds $1

Line 16. Depreciation. Besides depreciation,

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

$15,500

million. Generally, a covered employee is:

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

include on line 16 the part of the cost that the

•

The chief executive officer of the REIT (or an

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

REIT elected to expense under section 179 for

individual acting in that capacity) as of the end

REIT has an inclusion amount. The inclusion amount for lease

certain property placed in service during tax

terms beginning in 2005 will be published in the Internal

of the tax year or

year 2004 or carried over from 2003. See Form

•

Revenue Bulletin in early 2005.

An employee whose total compensation

4562 and its instructions.

must be reported to shareholders under the

Line 18. Other deductions.

Securities Exchange Act of 1934 because the

See Pub. 463 for instructions on figuring the

employee is among the four highest

inclusion amount.

Penalties or fines paid to any

compensated officers for that tax year (other

government agency or instrumentality

Line 14. Taxes and licenses. Enter taxes

than the chief executive officer).

because of a violation of a law are not

paid or incurred during the tax year, but do not

CAUTION

For this purpose, compensation does not

deductible. See Publication 535, Business

include the following:

•

include the following:

Expenses, for additional information.

Federal income taxes (except for the tax

•

Income from certain employee trusts,

imposed on net recognized built-in gain

Attach a schedule, listing by type and

annuity plans, or pensions and

allocable to ordinary income).

amount, all allowable deductions that are not

•

Any benefit paid to an employee that is

Foreign or U.S. possession income taxes if a

deductible elsewhere on the return. Enter the

excluded from the employee’s income.

tax credit is claimed (however, see the

total on line 18. Include amortization and

The deduction limit does not apply to:

Instructions for Form 5735 for special rules for

organization expenses. Generally, a deduction

•

Commissions based on individual

possession income taxes).

may not be taken for any amount that is

•

performance,

Taxes not imposed on the REIT.

allocable to a class of exempt income. See

•

Qualified performance-based compensation,

Taxes, including state or local sales taxes,

section 265(b) for exceptions.

that are paid or incurred in connection with an

and

•

Examples of other deductions include:

Income payable under a written, binding

acquisition or disposition of property (these

•

Amortization (see Form 4562).

contract in effect on February 17, 1993.

taxes must be treated as a part of the cost of

•

Certain business start-up and organizational

the acquired property or, in the case of a

The $1-million limit is reduced by amounts

costs that the REIT elects to deduct.

disposition, as a reduction in the amount

•

disallowed as excess parachute payments

Reforestation costs. The REIT can elect to

realized on the disposition).

under section 280G. For details, see section

•

deduct up to $10,000 of qualified reforestation

Taxes assessed against local benefits that

162(m) and Regulations section 1.162-27.

expenses paid or incurred after October 22,

increase the value of the property assessed

Line 10. Salaries and wages. Enter the total

2004, for each qualifying timber property. The

(such as for paving, etc.).

•

REIT can elect to amortize over 84 months any

salaries and wages paid for the tax year,

Taxes deducted elsewhere on the return.

•

amount not deducted.

reduced by the amount claimed on:

Excise taxes imposed under section 4981 on

•

Insurance premiums.

Form 5884, Work Opportunity Credit, line 2,

undistributed REIT income.

•

Form 8844, Empowerment Zone and

Legal and professional fees.

•

See section 164(d) for apportionment of

Renewal Community Employment Credit, line

Supplies used and consumed in the

taxes on real property between seller and

business.

•

purchaser.

Form 8845, Indian Employment Credit, line

Utilities.

•

Ordinary losses from trade or business

Line 15. Interest.

•

activities of a partnership (from Schedule K-1

Form 8861, Welfare-to-Work Credit, line 2,

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

and

Interest expense cannot be used to

•

Form 8884, New York Liberty Zone Business

offset interest income.

income against ordinary losses. Instead,

Employee Credit, line 2.

include the income on line 7. Show the

CAUTION

partnership’s name, address, and EIN on a

See the instructions for these forms for

The deduction for interest is limited when

separate statement attached to this return. If

more information. Do not include salaries and

the REIT is a policyholder or beneficiary with

the amount is from more than one partnership,

wages deductible elsewhere on the return,

respect to a life insurance, endowment, or

identify the amount from each partnership.

such as elective contributions to a section

•

annuity contract issued after June 8, 1997. For

Deduction for clean-fuel vehicle and certain

401(k) cash or deferred arrangement, or

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

refueling property (see Pub. 535).

amounts contributed under a salary reduction

showing the computation of the deduction.

Charitable contributions. Enter contributions

SEP agreement or a SIMPLE IRA plan.

The REIT must make an interest allocation

or gifts actually paid within the tax year to or for

If the REIT provided taxable fringe

if the proceeds of a loan were used for more

the use of charitable and governmental

benefits to its employees, such as

than one purpose (for example, to purchase a

organizations described in section 170(c) and

personal use of a car, do not deduct as

CAUTION

portfolio investment and to acquire an interest

any unused contributions carried over from

wages the amounts allocated for depreciation

in a passive activity). See Temporary

prior years.

and other expenses claimed on lines 16 and

Regulations section 1.163-8T for the interest

REITs reporting taxable income on the

18.

allocation rules.

accrual method may elect to treat as paid

Line 11. Repairs and maintenance. Enter the

The following interest is not deductible:

during the tax year any deductible contributions

cost of incidental repairs and maintenance,

•

Interest on indebtedness incurred or

paid by the 15th day of the 3rd month after the

such as labor and supplies, that do not add to

continued to purchase or carry obligations if

end of the tax year if the contributions were

the value of the property or appreciably prolong

the interest is wholly exempt from income tax.

authorized by the board of directors during the

its life. New buildings, machinery, or

For exceptions, see section 265(b).

tax year.Attach a declaration to the return

permanent improvements that increase the

•

For cash basis taxpayers, prepaid interest

stating that the resolution authorizing the

value of the property are not deductible. They

allocable to years following the current tax year

contributions was adopted by the board of

must be depreciated or amortized.

(for example, a cash basis calendar year

directors during the tax year. The declaration

Line 12. Bad debts. Enter the total debts that

taxpayer who in 2004 prepaid interest allocable

must include the date the resolution was

became worthless in whole or in part during the

to any period after 2004 can deduct only the

adopted.

tax year. A cash basis taxpayer may not claim

amount allocable to 2004).

•

A REIT may treat cash contributions

a bad debt deduction unless the amount was

Interest and carrying charges on straddles.

TIP

made to a qualified charitable

previously included in income.

Generally, these amounts must be capitalized.

organization in January 2005 for the

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

See section 263(g).

•

relief of victims in areas affected by the

vehicle, enter the total annual rent or lease

Interest paid or incurred on any portion of an

December 26, 2004, Indian Ocean tsunami as

expense paid or incurred during the year. Also

underpayment of tax that is attributable to an

if it had made them on December 31, 2004.

complete Part V of Form 4562, Depreciation

understatement arising from an undisclosed

and Amortization. If the REIT leased a vehicle

listed transaction or an undisclosed reportable

Limitation on deduction. The total

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

avoidance transaction (other than a listed

amount claimed may not be more than 10% of

-7-

Instructions For Form 1120-Reit - 2004 Page 7

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