Instructions For Form 1120-Reit - 2016 (Page 14 of 19) in pdf

Indicates that the election under section

requirements, the REIT sets forth a

If the REIT declared dividends in any of

856(e) is being made;

description of each item of its gross

those months and actually paid them in

Identifies the property to which the

income described in sections 856(c)(2)

January, as discussed above, enter on

election applies;

and 856(c)(3) in an attached schedule. In

line 3 those dividends not already included

Includes the name, address, and EIN of

addition, its failure to meet the

on lines 1, 2, and 4 of Schedule A.

the REIT, the date the property was

source-of-income requirements must be

Line 7. If, for any tax year the REIT has

acquired, and a brief description of how

due to reasonable cause and not due to

net income from foreclosure property (as

the property was acquired (including the

willful neglect.

defined in section 857(b)(4)(B)), the

name of the person from whom the

deduction for dividends paid to be entered

For information on the relief provisions

property was acquired); and

on line 6 (and on line 21b, page 1) is

under sections 856(c)(7) and 856(g)(5),

Gives a description of the lease or debt

determined by multiplying the amount on

see the Instructions for Schedule J, line 2f.

with respect to which default occurred or

line 5 by the following fraction:

was imminent.

Part IV—Tax on Net

REIT taxable income (determined without regard

The REIT can revoke the election by

to the deduction for dividends paid)

filing a revocation on or before the due

Income From Prohibited

REIT taxable income (determined without regard

date (including extensions) for filing Form

Transactions

to the deduction for dividends paid) +

1120-REIT. See section 856(e) for more

(Net income from foreclosure property minus

details.

Section 857(b)(6) imposes a tax equal to

the tax on net income from foreclosure property)

100% of the net income derived from

Line 2. Gross income from foreclosure

prohibited transactions. The 100% tax is

property. Do not include income that

imposed to prevent a REIT from retaining

qualifies under the REIT's 75% gross

any profit from ordinary retailing activities

Schedule J—Tax

income test under section 856(c)(3)(A),

such as sales to customers of

(B), (C), (D), (E), or (G). These amounts

Computation

condominium units or subdivided lots in a

must be reported in Part I.

development tract.

Line 1

Line 4. Deductions. Deduct only those

Line 1. Gain from sale or other disposi-

expenses that have a proximate and

A member of a controlled group must

tion of property. Include only gain from

primary relationship to earning the income

check the box on line 1 and complete and

the sale or other disposition of property

shown on line 3. This includes:

attach Schedule O (Form 1120). See

described in section 1221(a)(1) that is not

Depreciation on foreclosure property;

Schedule O (Form 1120) and its

foreclosure property and that does not

Interest paid or accrued on debt of the

instructions for more information.

qualify as an exception. See section

REIT that is attributable to the carrying of

857(b)(6)(C) for information on certain

Line 2a–Tax on REIT Taxable

the property;

sales that do not qualify as prohibited

Income

Real estate taxes; and

transactions. See section 856(j) for a

Fees charged by an independent

Most REITs figure their tax by using the

special rule regarding a shared

contractor to manage such property.

appreciation mortgage. Exceptions apply

Tax Rate Schedule below. A member of a

Do not deduct general overhead and

for certain sales of timber property by a

controlled group must use Schedule O

administrative expenses in Part II.

timber REIT. See section 857(b)(6)(D).

(Form 1120) to figure its tax.

Do not net losses from prohibited

Tax Rate Schedule

Part III—Tax for Failure To

transactions against gains in determining

the amount to enter on line 1. Enter losses

Meet Certain

If taxable income (line 22, page 1) is:

from prohibited transactions on the

Of the

Source-of-Income

appropriate line in Part I.

amount

Requirements

Over—

But not over—

Tax is:

over—

Line 2. Deductions. Deduct only those

$50,000

15%

expenses that have a proximate and

Section 856(c)(6) provides REITs with a

50,000

75,000

$ 7,500 + 25%

50,000

primary relationship to the earning of the

relief provision if they have failed to satisfy

75,000

100,000

13,750 + 34%

75,000

income shown on line 1. Do not deduct

100,000

335,000

22,250 + 39%

100,000

the source-of-income requirements of

335,000

10,000,000

113,900 + 34%

335,000

general overhead and administrative

sections 856(c)(2) and 856(c)(3). If

10,000,000

15,000,000

3,400,000 + 35% 10,000,000

expenses in Part IV.

section 856(c)(6) applies to a REIT for any

15,000,000

18,333,333

5,150,000 + 38% 15,000,000

taxable year, a tax is imposed on the REIT

18,333,333

- - - - -

35%

under section 857(b)(5).

Schedule A—Deduction

All REITs must complete lines 1a

for Dividends Paid

Alternative tax for REITs with qualified

through 8 of Part III to determine whether

timber gains. For tax years beginning in

they are subject to the tax imposed under

Lines 1 through 5. Section 561 (taking

2016, a REIT with both net capital gain

section 857(b)(5). If line 8 is zero, the tax

into account sections 857(b)(8), 857(d)(3)

and qualified timber gain (as defined in

does not apply, and the REIT does not

(B), and 858(a)) determines the deduction

Section 1201(b)(2)) may apply a 23.8%

have to complete the rest of Part III.

for dividends paid.

alternative tax rate to the portion of the

However, if line 8 is greater than zero, the

REITs taxable income attributable to the

Line 3. Dividends declared in October,

REIT is subject to this tax, and must

qualified timber gain (or, if less, the REIT’s

November, or December and payable to

complete the rest of Part III to determine

net capital gain for the tax year). The tax is

shareholders of record in October,

the amount of tax.

figured on Schedule D (Form 1120), Part

November, or December are treated by

IV. Enter on Schedule J, line 2a, the tax

A REIT that has failed the

the REIT as paid on December 31 of that

from Schedule D, Part IV, line 30. See the

source-of-income requirements of

calendar year. The REIT is then eligible for

Instructions for Schedule D (Form 1120).

sections 856(c)(2) and 856(c)(3) may

the deduction for dividends paid for the

avoid loss of its REIT status as a result of

year the dividends are declared even

the failure if, following identification of its

though they are not actually paid until

failure to meet the source-of-income

January of the following calendar year.

-14-

Instructions For Form 1120-Reit - 2016 Page 14

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