Instructions For Form 1120-Reit - 2011 (Page 8 of 16) in pdf

schedule. If the REIT has only one item of

1. Ordinary earnings of a qualified

be required to attach a statement to its

other income, describe it in parentheses

electing fund (QEF)(from Part II, line 1c).

return to elect to deduct such costs.

on line 7. Examples of other income to

2. Gain or loss from marking passive

If the REIT timely filed its return for the

report on line 7 are:

foreign investment company income

year without making an election, it can

•

(PFIC) stock to market (from Part III, line

Amounts received or accrued as

still make an election by filing an

5c or 7).

consideration for entering into

amended return within 6 months of the

3. Gain or loss from sale or other

agreements to make real property loans

due date of the return (excluding

disposition of Section 1296 stock (from

or to purchase or lease real property.

extensions). Clearly indicate the election

•

Part III, line 8c or 9b).

Recoveries of bad debts deducted in

on the amended return and write “Filed

4. Excess distributions from a section

prior years under the specific charge-off

pursuant to section 301.9100-2” at the top

1291 fund (from Part IV, line 11b).

method.

of the amended return. File the amended

•

return at the same address the REIT filed

See the Instructions for Form 8621.

Refunds of taxes deducted in prior

its original return. The election applies

years if they reduced income subject to

Deductions

when figuring taxable income for the

tax in the year deducted (see section

current tax year and all subsequent years.

111). Do not offset current year taxes

Limitations on Deductions

against tax refunds.

Note. The REIT can choose to forego

•

Section 263A uniform capitalization

Any deduction previously taken under

the elections above by clearly electing to

rules. The uniform capitalization rules of

section 179A that is subject to recapture.

capitalize its start-up or organizational

section 263A generally require REITs to

The REIT must recapture the benefit of

costs on an income tax return filed by the

capitalize certain costs directly or

any allowable deduction for clean-fuel

due date (including extensions) for the tax

indirectly (including taxes) allocable to

vehicle property (or clean-fuel vehicle

year in which the active trade or business

real or tangible personal property

refueling property), if the property later

begins.

constructed or improved by the REIT.

ceases to qualify. See Regulations

Report the deductible amount of such

section 1.179A-1 for details.

For more details on the uniform

costs and any amortization on line 18. For

•

Ordinary income from trade or business

capitalization rules, see Regulations

amortization that begins during the 2011

activities of a partnership (from Schedule

sections 1.263A-1 through 1.263A-3. See

tax year, complete and attach Form 4562.

K-1 (Form 1065 or 1065-B)). Do not offset

Regulations section 1.263A-4 for rules for

For more details on business start-up

ordinary losses against ordinary income.

property produced in a farming business.

and organizational costs, see Pub. 535,

Instead, include the losses on line 18 of

Transactions between related

Business Expenses.

Form 1120-REIT. Show the partnership’s

taxpayers. Generally, an accrual basis

Passive activity limitations. Limitations

name, address, and EIN on a separate

taxpayer may only deduct business

on passive activity losses and credits (for

statement attached to this return. If the

expenses and interest owed to a related

the first tax year as a REIT) under section

amount entered is from more than one

party in the year the payment is included

469 apply to REITs that are closely held

partnership, identify the amount from

in the income of the related party. See

(as defined in section 856(h)). REITs

each partnership.

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

subject to the passive activity limitations

•

Income from discharge of indebtedness

limitations on deductions for unpaid

must complete Form 8810 to compute

for the repurchase of a debt instrument

interest and expenses.

their allowable passive activity loss and

for less than its adjusted issue price.

credit. Before completing Form 8810, see

Also see the Instructions for Form

However, for a reacquisition of an

Temporary Regulations section 1.163-8T,

8926, Disqualified Corporate Interest

applicable debt instrument in 2009 and

for rules on allocating interest expense

Expense Disallowed Under Section 163(j)

2010, a REIT can elect, under section

among activities.

and Related Information, with respect to

108(i), to defer the income from discharge

section 163(j).

Reducing certain expenses for which

of indebtedness in connection with the

credits are allowable. For each credit

election. If the REIT makes the election,

Golden parachute payments. A portion

listed below, the REIT must reduce the

the income is deferred and ratably

of the payments made by a REIT to key

otherwise allowable deductions for

included in income over the 5-year period

personnel that exceeds their usual

expenses used to figure the credit by the

beginning with:

compensation may not be deductible.

amount of the current year credit. Do not

This occurs when the REIT has an

1. For a reacquisition occurring in

reduce the amount of the allowable

agreement (golden parachute) with these

2009, the 5th tax year following the tax

deduction for any portion of the credit that

key employees to pay them these

year in which the reacquisition occurs,

was passed through to the REIT from a

excessive amounts if control of the REIT

and

pass-through entity on Schedule K-1.

changes. See section 280G and

2. For a reacquisition occurring in

•

Employment credits. See the

Regulations section 1.280G-1. Also see

2010, the 4th tax year following the tax

instructions for line 10.

the instructions for line 9.

year in which the reacquisition occurs.

•

Disabled access credit.

Business start-up and organizational

•

Employer credit for social security and

Once made, the election is irrevocable

costs. A REIT can elect to deduct up to

Medicare taxes paid on certain employee

and the exclusions for COD income under

$5,000 of business start-up and up to

tips.

sections 108(a)(1)(A), (B), (C), and (D) do

$5,000 of organizational costs paid or

•

Credit for small employer pension plan

not apply for the tax year of the election

incurred after October 22, 2004. Any

start-up costs.

or any later tax year. See Annual

remaining cost must be amortized. The

•

Credit for employer-provided childcare

information statement for elections made

$5,000 deduction is reduced (but not

facilities and services.

under section 108(i), earlier, for details

below zero) by the amount the total costs

regarding the annual information

If the REIT is eligible to claim any of

exceed $50,000. If the total costs are

statement that is required. For more

these credits, figure each current year

$55,000 or more, the deduction is

information, see section 108(i) and Rev.

credit before figuring the deduction for

reduced to zero. See sections 195(b) and

Proc. 2009-37.

expenses on which the credit is based. If

248(a).

the REIT capitalized any costs on which it

If the REIT is a direct or indirect

Time for making an election. The

figured the credit, reduce the amount

partner in a partnership other special

REIT generally elects to deduct start-up

capitalized by the credit attributable to

rules apply. See Temporary Regulations

or organizational costs by claiming the

these costs.

section 1.108(i)-2T.

deduction on its income tax return filed by

•

See the instructions for the form used

The REIT’s share of the following

the due date (including extensions) for the

to figure the applicable credit.

income from Form 8621, Information

tax year in which the active trade or

Line 9. Compensation of officers. Do

Return by a Shareholder of a Passive

business begins. However, for start-up or

Foreign Investment Company or Qualified

organizational costs paid or incurred

not include compensation deductible

Electing Fund.

before September 9, 2008, the REIT may

elsewhere on the return, such as elective

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Instructions For Form 1120-Reit - 2011 Page 8

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