26 U.S.C. § 857: Taxation of real estate investment trusts and their beneficiaries

§ 1.857-1 Taxation of real estate investment trusts.§ 1.857-2 Real estate investment trust taxable income and net capital gain.§ 1.857-3 Net income from foreclosure property.§ 1.857-4 Tax imposed by reason of the failure to meet certain source-of-income requirements.§ 1.857-5 Net income and loss from prohibited transactions.§ 1.857-6 Method of taxation of shareholders of real estate investment trusts.§ 1.857-7 Earnings and profits of a real estate investment trust.§ 1.857-8 Records to be kept by a real estate investment trust.§ 1.857-9 Information required in returns of shareholders.§ 1.857-10 Information returns.§ 1.857-11 Non-REIT earnings and profits.

(a) Requirements applicable to real estate investment trusts The provisions of this part (other than subsection (d) of this section and subsection (g) of section 856) shall not apply to a real estate investment trust for a taxable year unless—

Amended 1976, 1986, 1988, 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1251(a)(1), redesignated par. (3) as (2) and struck out former par. (2) which read as follows: “the real estate investment trust complies for such year with regulations prescribed by the Secretary for the purpose of ascertaining the actual ownership of the outstanding shares, or certificates of beneficial interest, of such trust, and”.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(s)(4), inserted at end “The Secretary may waive the requirements of paragraph (1) for any taxable year if the real estate investment trust establishes to the satisfaction of the Secretary that it was unable to meet such requirements by reason of distributions previously made to meet the requirements of section 4981.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 661(b), struck out “and” at end of par. (1), substituted “, and” for the period at end of par. (2), and added par. (3) and last sentence.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1604(j), (k)(2)(B), 1906(b)(13)(A), substituted “(other than subsection (d) of this section and subsection (g) of section 856)” for “(other than subsection (d) of this section)” in provisions preceding par. (1), in par. (1) redesignated existing subpars. (A) and (B) as cls. (i) and (ii), respectively, of subpar. (A), added subpar. (B), in both cls. (i) and (ii) of subpar. (A) as redesignated raised the percentage to 95 percent for taxable years beginning on and after Jan. 1, 1980, and, in cl. (i) of subpar. (A) as redesignated, inserted provision for the exclusion of net capital gain, and struck out “or his delegate” after “Secretary” in par. (2).

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(1) the deduction for dividends paid during the taxable year (as defined in section 561, but determined without regard to capital gains dividends) equals or exceeds—

Amended 1975

1975 Pub. L. 93-625 Pub. L. 93–625, § 6(d)(2), incorporated existing par. (1) provisions in par. (1) introductory text and provisions designated as subpar. (A), substituted in subpar. (A) “(determined without regard to the deduction for dividends paid (as defined in section 561))” for “(determined without regard to subsection (b)(2)(C))”, and added subpar. (B).

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(A) the sum of—

(i) 90 percent of the real estate investment trust taxable income for the taxable year (determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain); and

Amended 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 556(a), substituted “90 percent” for “95 percent (90 percent for taxable years beginning before January 1, 1980)”.

(ii) 90 percent of the excess of the net income from foreclosure property over the tax imposed on such income by subsection (b)(4)(A); minus

Amended 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 556(a), substituted “90 percent” for “95 percent (90 percent for taxable years beginning before January 1, 1980)”.

(B) any excess noncash income (as determined under subsection (e)); and

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 664(a), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “the sum of—
“(i) the amount of any penalty imposed on the real estate investment trust by section 6697 which is paid by such trust during the taxable year; and
“(ii) the net loss derived from prohibited transactions,”.

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(2) either—

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1251(a)(1), redesignated par. (3) as (2) and struck out former par. (2) which read as follows: “the real estate investment trust complies for such year with regulations prescribed by the Secretary for the purpose of ascertaining the actual ownership of the outstanding shares, or certificates of beneficial interest, of such trust, and”.

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(A) the provisions of this part apply to the real estate investment trust for all taxable years beginning after February 28, 1986, or

(B) as of the close of the taxable year, the real estate investment trust has no earnings and profits accumulated in any non-REIT year.

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For purposes of the preceding sentence, the term “non-REIT year” means any taxable year to which the provisions of this part did not apply with respect to the entity. The Secretary may waive the requirements of paragraph (1) for any taxable year if the real estate investment trust establishes to the satisfaction of the Secretary that it was unable to meet such requirements by reason of distributions previously made to meet the requirements of section 4981.

(b) Method of taxation of real estate investment trusts and holders of shares or certificates of beneficial interest

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(1) Imposition of tax on real estate investment trusts There is hereby imposed for each taxable year on the real estate investment trust taxable income of every real estate investment trust a tax computed as provided in section 11, as though the real estate investment trust taxable income were the taxable income referred to in section 11.

Amended 1976, 1978

1978 Pub. L. 95-600 Pub. L. 95–600, § 301(b)(12), substituted “a tax” for “a normal tax and surtax”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(b)(1)(V), struck out provision that, for purposes of computing the normal tax under section 11, the taxable income and the dividends paid deduction of such real estate investment trust for the taxable year (computed without regard to capital gains dividends) would be reduced by the deduction provided by section 22 (relating to partially tax-exempt interest.

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(2) Real estate investment trust taxable income For purposes of this part, the term “real estate investment trust taxable income” means the taxable income of the real estate investment trust, adjusted as follows:

Amended 1976

1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1602(b)(2), 1603(c)(5), 1606(a), (d), 1607(b)(1)(A), (2), struck out subpar. (A) which provided for the exclusion of the excess, if any, of the net long-term capital gain over the net short-term capital loss, and subpar. (E) which prohibited the allowance of the net operating loss deduction provided in section 172, redesignated subpars. (B), (C), (D), and (F) as subpars. (A), (B), (C), and (D), respectively, added subpars. (E) and (F), and in subpar. (B) as redesignated substituted “subparagraph (D)” for “paragraph (F)” and struck out “shall be computed without regard to capital gains dividends and” after “shall be allowed, but”.

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(A) The deductions for corporations provided in part VIII (except section 248) of subchapter B (section 241 and following, relating to the deduction for dividends received, etc.) shall not be allowed.

(B) The deduction for dividends paid (as defined in section 561) shall be allowed, but shall be computed without regard to that portion of such deduction which is attributable to the amount excluded under subparagraph (D).

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(C) The taxable income shall be computed without regard to section 443(b) (relating to computation of tax on change of annual accounting period).

Amended 1975

1975 Pub. L. 93-625 Pub. L. 93–625, § 6(d)(4), provided for computation of deduction for dividends paid without regard to that portion of such deduction which is attributable to the amount excluded under subparagraph (F).

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(D) There shall be excluded an amount equal to the net income from foreclosure property.

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(E) There shall be deducted an amount equal to the tax imposed by paragraphs (5) and (7) of this subsection, section 856(c)(7)(C), and section 856(g)(5) for the taxable year.

Amended 1999, 2004, 2005

2005 Pub. L. 109-135 Pub. L. 109–135, § 403(d)(3), substituted “section 856(c)(7)(C), and section 856(g)(5)” for “section 856(c)(7)(B)(iii), and section 856(g)(1).”
2004 Pub. L. 108-357 Pub. L. 108–357, § 243(f)(4), substituted “(7) of this subsection, section 856(c)(7)(B)(iii), and section 856(g)(1).” for “(7)”.
1999 Pub. L. 106-170 Pub. L. 106–170, § 545(b), substituted “paragraphs (5) and (7)” for “paragraph (5)”.

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(F) There shall be excluded an amount equal to any net income derived from prohibited transactions.

Amended 1975, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 666(b)(2), struck out “and there shall be included an amount equal to any net loss derived from prohibited transactions” after “prohibited transactions”.
1975 Pub. L. 93-625 Pub. L. 93–625, § 6(d)(3), added subpar. (F).

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(3) Capital gains

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(A) Treatment of capital gain dividends by shareholders A capital gain dividend shall be treated by the shareholders or holders of beneficial interests as a gain from the sale or exchange of a capital asset held for more than 1 year.

Amended 1969, 1976, 1978, 2008, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(i), redesignated subpars. (B) and (C) as (A) and (B), respectively, and struck out former subpar. (A) which related to alternative tax in case of capital gains.
2008 Pub. L. 110-246 Pub. L. 110–246, § 15311(c), substituted “rates” for “rate”.
1978 Pub. L. 95-600 Pub. L. 95–600, § 403(c)(3), substituted “a tax determined at the rate provided in section 1201(a) on” for “a tax of 30 percent of”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1607(a), substituted provisions setting an alternative tax in case of capital gains under which, if for any taxable year, a real estate investment trust has a net capital gain, then, in lieu of the tax imposed by subsection (b)(1), there is imposed a tax (if such tax is less than the tax imposed by such subsection) to consist of the sum of a tax, computed as provided in subsection (b)(1), on the real estate investment trust taxable income (determined by excluding such net capital gain and by computing the deduction for dividends paid without regard to capital gain dividends), and a tax of 30 percent of the excess of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gains dividends only, for provisions posing a tax for each taxable year determined as provided in section 1201(a), on the excess, if any, of the net long-term capital gain over the sum of the net short-term capital loss and the deduction for dividends paid (as defined in section 561) determined with reference to capital gains dividends only.
1969 Pub. L. 91-172 Pub. L. 91–172, § 511(c)(3)(A), substituted “determined as provided in section 1201(a), on” for “of 25 percent of.”

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(B) Definition of capital gain dividend For purposes of this part, a capital gain dividend is any dividend, or part thereof, which is designated by the real estate investment trust as a capital gain dividend in a written notice mailed to its shareholders or holders of beneficial interests at any time before the expiration of 30 days after the close of its taxable year (or mailed to its shareholders or holders of beneficial interests with its annual report for the taxable year); except that, if there is an increase in the excess described in subparagraph (A)(ii) of this paragraph for such year which results from a determination (as defined in section 860(e)), such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination. If the aggregate amount so designated with respect to a taxable year of the trust (including capital gain dividends paid after the close of the taxable year described in section 858) is greater than the net capital gain of the taxable year, the portion of each distribution which shall be a capital gain dividend shall be only that proportion of the amount so designated which such net capital gain bears to the aggregate amount so designated. For purposes of this subparagraph, the amount of the net capital gain for any taxable year which is not a calendar year shall be determined without regard to any net capital loss attributable to transactions after December 31 of such year, and any such net capital loss shall be treated as arising on the 1st day of the next taxable year. To the extent provided in regulations, the preceding sentence shall apply also for purposes of computing the taxable income of the real estate investment trust.

Amended 1976, 1984, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(i), redesignated subpars. (B) and (C) as (A) and (B), respectively, and struck out former subpar. (A) which related to alternative tax in case of capital gains.
1984 Pub. L. 98-369 Pub. L. 98–369, § 1001(b)(13), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(1)(P), provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

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Amended 1969, 1976, 1978, 1986, 1988, 1990, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(i), redesignated subpar. (D) as (C). Former subpar. (C) redesignated (B).
1990 Pub. L. 101-508 Pub. L. 101–508 amended Pub. L. 100–647, § 1018(u)(28). See 1988 Amendment note below.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1018(u)(28), as amended by Pub. L. 101–508, substituted “such net capital loss shall” for “such net capital loss such”.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(s)(2), substituted “the taxable income of the real estate investment trust” for “real estate investment trust taxable income”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 668(b)(3), inserted at end “For purposes of this subparagraph, the amount of the net capital gain for any taxable year which is not a calendar year shall be determined without regard to any net capital loss attributable to transactions after December 31 of such year, and any such net capital loss such be treated as arising on the 1st day of the next taxable year. To the extent provided in regulations, the preceding sentence shall apply also for purposes of computing real estate investment trust taxable income.”
1986 Pub. L. 99-514 Pub. L. 99–514, § 665(a)(2), (b)(1), inserted “(or mailed to its shareholders or holders of beneficial interests with its annual report for the taxable year)”, struck out last sentence which read as follows: “For purposes of this subparagraph, the net capital gain shall be deemed not to exceed the real estate investment trust taxable income (determined without regard to the deduction for dividends paid (as defined in section 561) for the taxable year).”
1978 Pub. L. 95-600 Pub. L. 95–600, § 362(d)(3), substituted “section 860(e)” for “section 859(c)”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1601(c), 1607(b)(3), 1901(a)(112), (b)(33)(K), inserted “; except that, if there is an increase in the excess described in subparagraph (A)(ii) of this paragraph for such year which results from a determination (as defined in section 859(c)), such designation may be made with respect to such increase at any time before the expiration of 120 days after the date of such determination” after “30 days after the close of its taxable year”, substituted “net capital gain” for “excess of the net long-term capital gain over the net short-term capital loss” in provision covering the portion of distributions which shall be capital gain dividends, inserted provision that the net capital gain be deemed not to exceed the real estate investment trust taxable income, and struck out provision which specified the source of deductions for dividends paid in the case of taxable years beginning before Jan. 1, 1975.
1969 Pub. L. 91-172 Pub. L. 91–172, § 511(c)(3)(B), inserted provision requiring for the purposes of the deduction for capital gains dividends paid, in the case of a taxable year beginning before Jan. 1, 1975, the deduction for dividends paid shall first be made from the amount subject to tax in accordance with section 1201(a)(1)(B), to the extent thereof, and then from the amount subject to tax in accordance with section 1201(a)(1)(A).

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(i) Every shareholder of a real estate investment trust at the close of the trust’s taxable year shall include, in computing his long-term capital gains in his return for his taxable year in which the last day of the trust’s taxable year falls, such amount as the trust shall designate in respect of such shares in a written notice mailed to its shareholders at any time prior to the expiration of 60 days after the close of its taxable year (or mailed to its shareholders or holders of beneficial interests with its annual report for the taxable year), but the amount so includible by any shareholder shall not exceed that part of the amount subjected to tax in paragraph (1) which he would have received if all of such amount had been distributed as capital gain dividends by the trust to the holders of such shares at the close of its taxable year.

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(ii), substituted “paragraph (1)” for “subparagraph (A)(ii)” in cl. (i) and “the tax imposed by paragraph (1) on undistributed capital gain” for “the tax imposed by subparagraph (A)(ii)” in cls. (ii) and (iv).

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(ii) For purposes of this title, every such shareholder shall be deemed to have paid, for his taxable year under clause (i), the tax imposed by paragraph (1) on undistributed capital gain on the amounts required by this subparagraph to be included in respect of such shares in computing his long-term capital gains for that year; and such shareholders shall be allowed credit or refund as the case may be, for the tax so deemed to have been paid by him.

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(ii), substituted “paragraph (1)” for “subparagraph (A)(ii)” in cl. (i) and “the tax imposed by paragraph (1) on undistributed capital gain” for “the tax imposed by subparagraph (A)(ii)” in cls. (ii) and (iv).

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(iii) The adjusted basis of such shares in the hands of the holder shall be increased with respect to the amounts required by this subparagraph to be included in computing his long-term capital gains, by the difference between the amount of such includible gains and the tax deemed paid by such shareholder in respect of such shares under clause (ii).

(iv) In the event of such designation, the tax imposed by paragraph (1) on undistributed capital gain shall be paid by the real estate investment trust within 30 days after the close of its taxable year.

Amended 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(ii), substituted “paragraph (1)” for “subparagraph (A)(ii)” in cl. (i) and “the tax imposed by paragraph (1) on undistributed capital gain” for “the tax imposed by subparagraph (A)(ii)” in cls. (ii) and (iv).

(v) The earnings and profits of such real estate investment trust, and the earnings and profits of any such shareholder which is a corporation, shall be appropriately adjusted in accordance with regulations prescribed by the Secretary.

(vi) As used in this subparagraph, the terms “shares” and “shareholders” shall include beneficial interests and holders of beneficial interests, respectively.

(D) Coordination with net operating loss provisions For purposes of section 172, if a real estate investment trust pays capital gain dividends during any taxable year, the amount of the net capital gain for such taxable year (to the extent such gain does not exceed the amount of such capital gain dividends) shall be excluded in determining—

Amended 1986, 1997, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(i), redesignated subpar. (E) as (D). Former subpar. (D) redesignated (C).
1997 Pub. L. 105-34 Pub. L. 105–34, § 1254(a), added subpar. (D) and redesignated former subpar. (D) as (E).
1986 Pub. L. 99-514 Pub. L. 99–514, § 665(a)(1), added subpar. (D).

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(i) the net operating loss for the taxable year, and

(ii) the amount of the net operating loss of any prior taxable year which may be carried through such taxable year under section 172(b)(2) to a succeeding taxable year.

(E) Certain distributions In the case of a shareholder of a real estate investment trust to whom section 897 does not apply by reason of the second sentence of section 897(h)(1) or subparagraph (A)(ii) or (C) of section 897(k)(2), the amount which would be included in computing long-term capital gains for such shareholder under subparagraph (A) or (C) (without regard to this subparagraph)—

Amended 1997, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(i), (iii), redesignated subpar. (F) as (E) and substituted “subparagraph (A) or (C)” for “subparagraph (B) or (D)”. Former subpar. (E) redesignated (D).
1997 Pub. L. 105-34 Pub. L. 105–34, § 1254(a), added subpar. (D) and redesignated former subpar. (D) as (E).

(i) shall not be included in computing such shareholder’s long-term capital gains, and

(ii) shall be included in such shareholder’s gross income as a dividend from the real estate investment trust.

(F) Undistributed capital gain For purposes of this paragraph, the term “undistributed capital gain” means the excess of the net capital gain over the deduction for dividends paid (as defined in section 561) determined with reference to capital gain dividends only.

Amended 2004, 2015, 2017

2017 Pub. L. 115-97 Pub. L. 115–97, § 13001(b)(2)(K)(iv), added subpar. (F). Former subpar. (F) redesignated (E).
2015 Pub. L. 114-113 Pub. L. 114–113, § 322(a)(2)(B), inserted “or subparagraph (A)(ii) or (C) of section 897(k)(2)” after “897(h)(1)”.
2004 Pub. L. 108-357 Pub. L. 108–357, § 418(b), added subpar. (F).

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(4) Income from foreclosure property

Amended 1975

1975 Pub. L. 93-625 Pub. L. 93–625, § 6(c), added par. (4) and redesignated former par. (4) as (5).

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(A) Imposition of tax A tax is hereby imposed for each taxable year on the net income from foreclosure property of every real estate investment trust. Such tax shall be computed by multiplying the net income from foreclosure property by the highest rate of tax specified in section 11(b).

Amended 1980

1980 Pub. L. 96-222 Pub. L. 96–222 substituted provisions computing the tax on the net income from foreclosure property of every real estate investment trust by multiplying the net income from foreclosure property by the highest rate of tax specified in section 11(b) for provisions determining the tax on the net income from foreclosure of property of every real estate investment trust by applying section 11 to such income as if such income constituted the taxable income of a corporation taxable under section 11 and struck out provisions requiring that for purposes of the preceding sentence, the surtax exemption be zero.

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(B) Net income from foreclosure property For purposes of this part, the term “net income from foreclosure property” means the excess of—

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(i) gain (including any foreign currency gain, as defined in section 988(b)(1)) from the sale or other disposition of foreclosure property described in section 1221(a)(1) and the gross income for the taxable year derived from foreclosure property (as defined in section 856(e)), but only to the extent such gross income is not described in (or, in the case of foreign currency gain, not attributable to gross income described in) section 856(c)(3) other than subparagraph (F) thereof, over

Amended 1976, 1999, 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3033(a), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “gain from the sale or other disposition of foreclosure property described in section 1221(a)(1) and the gross income for the taxable year derived from foreclosure property (as defined in section 856(e)), but only to the extent such gross income is not described in subparagraph (A), (B), (C), (D), (E), or (G) of section 856(c)(3), over”.
1999 Pub. L. 106-170 Pub. L. 106–170, § 532(c)(2)(L), substituted “section 1221(a)(1)” for “section 1221(1)”.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1604(c)(2), inserted reference to subparagraph (G) of section 856(c)(3).

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(ii) the deductions allowed by this chapter which are directly connected with the production of the income referred to in clause (i).

(5) Imposition of tax in case of failure to meet certain requirements If section 856(c)(6) applies to a real estate investment trust for any taxable year, there is hereby imposed on such trust a tax in an amount equal to the greater of—

Amended 1975, 1976, 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1255(b)(2), substituted “section 856(c)(6)” for “section 856(c)(7)” in introductory provisions.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1602(b)(1), added par. (5). Former par. (5) redesignated (7) and amended.
1975 Pub. L. 93-625 Pub. L. 93–625, § 6(c), added par. (4) and redesignated former par. (4) as (5).

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(A) the excess of—

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(i) 95 percent of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, over

Amended 1999, 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(e), substituted “95 percent” for “90 percent”.
1999 Pub. L. 106-170 Pub. L. 106–170, § 556(b), substituted “90 percent” for “95 percent (90 percent in the case of taxable years beginning before January 1, 1980)”.

(ii) the amount of such gross income which is derived from sources referred to in section 856(c)(2); or

(B) the excess of—

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(i) 75 percent of the gross income (excluding gross income from prohibited transactions) of the real estate investment trust, over

(ii) the amount of such gross income which is derived from sources referred to in section 856(c)(3),

multiplied by a fraction the numerator of which is the real estate investment trust taxable income for the taxable year (determined without regard to the deductions provided in paragraphs (2)(B) and (2)(E), without regard to any net operating loss deduction, and by excluding any net capital gain) and the denominator of which is the gross income for the taxable year (excluding gross income from prohibited transactions; gross income and gain from foreclosure property (as defined in section 856(e), but only to the extent such gross income and gain is not described in subparagraph (A), (B), (C), (D), (E), or (G) of section 856(c)(3)); long-term capital gain; and short-term capital gain to the extent of any short-term capital loss).

(6) Income from prohibited transactions

Amended 1976

1976 Pub. L. 94-455 Pub. L. 94–455, § 1603(b), added par. (6).

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(A) Imposition of tax There is hereby imposed for each taxable year of every real estate investment trust a tax equal to 100 percent of the net income derived from prohibited transactions.

(B) Definitions For purposes of this part—

(i) the term “net income derived from prohibited transactions” means the excess of the gain (including any foreign currency gain, as defined in section 988(b)(1)) from prohibited transactions over the deductions (including any foreign currency loss, as defined in section 988(b)(2)) allowed by this chapter which are directly connected with prohibited transactions;

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3033(b), amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “the term ‘net income derived from prohibited transactions’ means the excess of the gain from prohibited transactions over the deductions allowed by this chapter which are directly connected with prohibited transactions;”.

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(ii) in determining the amount of the net income derived from prohibited transactions, there shall not be taken into account any item attributable to any prohibited transaction for which there was a loss; and

Amended 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 666(b)(1), amended cl. (ii) generally. Prior to amendment, cl. (ii) read as follows: “the term ‘net loss derived from prohibited transactions’ means the excess of the deductions allowed by this chapter which are directly connected with prohibited transactions over the gain from prohibited transactions; and”.

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(iii) the term “prohibited transaction” means a sale or other disposition of property described in section 1221(a)(1) which is not foreclosure property.

Amended 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 532(c)(2)(M), substituted “section 1221(a)(1)” for “section 1221(1)”.

(C) Certain sales not to constitute prohibited transactions For purposes of this part, the term “prohibited transaction” does not include a sale of property which is a real estate asset (as defined in section 856(c)(5)(B)) if—

Amended 1978, 1997, 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(b)(1), in introductory provisions, struck out “and which is described in section 1221(a)(1)” after “(as defined in section 856(c)(5)(B))”.
2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(3), substituted “real estate asset (as defined in section 856(c)(5)(B)) and which is described in section 1221(a)(1) if” for “real estate asset as defined in section 856(c)(5)(B) if” in introductory provisions.
1997 Pub. L. 105-34 Pub. L. 105–34, § 1255(b)(3), substituted “section 856(c)(5)(B)” for “section 856(c)(6)(B)” in introductory provisions.
1978 Pub. L. 95-600 Pub. L. 95–600, § 363(b), added subpars. (C) to (E).

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(i) the trust has held the property for not less than 2 years;

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(1), substituted “2 years” for “4 years”.

(ii) aggregate expenditures made by the trust, or any partner of the trust, during the 2-year period preceding the date of sale which are includible in the basis of the property do not exceed 30 percent of the net selling price of the property;

Amended 1986, 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(2), substituted “2-year period” for “4-year period”.
1986 Pub. L. 99-514 Pub. L. 99–514, § 666(a)(2), substituted “30 percent” for “20 percent”.

(iii)

Amended 1986, 1997, 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(1), added subcls. (IV) and (V).
2008 Pub. L. 110-289 Pub. L. 110–289, § 3052(1), added subcl. (III).
1997 Pub. L. 105-34 Pub. L. 105–34, § 1260, substituted “(other than sales of foreclosure property or sales to which section 1033 applies)” for “(other than foreclosure property)” in subcls. (I) and (II).
1986 Pub. L. 99-514 Pub. L. 99–514, § 666(a)(1), amended cl. (iii) generally. Prior to amendment, cl. (iii) read as follows: “during the taxable year the trust does not make more than 5 sales of property (other than foreclosure property); and”.

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(I) during the taxable year the trust does not make more than 7 sales of property (other than sales of foreclosure property or sales to which section 1033 applies), or (II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the trust as of the beginning of the taxable year, or (III) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the fair market value of all of the assets of the trust as of the beginning of the taxable year, or (IV) the trust satisfies the requirements of subclause (II) applied by substituting “20 percent” for “10 percent” and the 3-year average adjusted bases percentage for the taxable year (as defined in subparagraph (G)) does not exceed 10 percent, or (V) the trust satisfies the requirements of subclause (III) applied by substituting “20 percent” for “10 percent” and the 3-year average fair market value percentage for the taxable year (as defined in subparagraph (H)) does not exceed 10 percent;

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(iv) in the case of property, which consists of land or improvements, not acquired through foreclosure (or deed in lieu of foreclosure), or lease termination, the trust has held the property for not less than 2 years for production of rental income; and

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(1), substituted “2 years” for “4 years”.

(v) if the requirement of clause (iii)(I) is not satisfied, substantially all of the marketing and development expenditures with respect to the property were made through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not derive or receive any income or a taxable REIT subsidiary.

Amended 1986, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(a)(1), inserted “or a taxable REIT subsidiary” before period at end.
1986 Pub. L. 99-514 Pub. L. 99–514, § 666(a)(3), added cl. (v).

(D) Certain sales not to constitute prohibited transactions For purposes of this part, the term “prohibited transaction” does not include a sale of property which is a real estate asset (as defined in section 856(c)(5)(B)) if—

Amended 1978, 2004, 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(b)(1), in introductory provisions, struck out “and which is described in section 1221(a)(1)” after “(as defined in section 856(c)(5)(B))”.
2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(3), substituted “real estate asset (as defined in section 856(c)(5)(B)) and which is described in section 1221(a)(1) if” for “real estate asset (as defined in section 856(c)(5)(B)) if” in introductory provisions.
2004 Pub. L. 108-357 Pub. L. 108–357, § 321(a), added subpar. (D) and redesignated former subpars. (D) and (E) as (E) and (F), respectively.
1978 Pub. L. 95-600 Pub. L. 95–600, § 363(b), added subpars. (C) to (E).

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(i) the trust held the property for not less than 2 years in connection with the trade or business of producing timber,

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(1), substituted “2 years” for “4 years”.

(ii) the aggregate expenditures made by the trust, or a partner of the trust, during the 2-year period preceding the date of sale which—

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(2), substituted “2-year period” for “4-year period” in introductory provisions.

(I) are includible in the basis of the property (other than timberland acquisition expenditures), and

(II) are directly related to operation of the property for the production of timber or for the preservation of the property for use as timberland,

do not exceed 30 percent of the net selling price of the property,

(iii) the aggregate expenditures made by the trust, or a partner of the trust, during the 2-year period preceding the date of sale which—

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(a)(2), substituted “2-year period” for “4-year period” in introductory provisions.

(I) are includible in the basis of the property (other than timberland acquisition expenditures), and

(II) are not directly related to operation of the property for the production of timber, or for the preservation of the property for use as timberland,

do not exceed 5 percent of the net selling price of the property,

(iv)

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(I) during the taxable year the trust does not make more than 7 sales of property (other than sales of foreclosure property or sales to which section 1033 applies), or

Cited by 1

(II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the trust as of the beginning of the taxable year, or

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(III) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the fair market value of all of the assets of the trust as of the beginning of the taxable year, or

Amended 2008

2008 Pub. L. 110-289 Pub. L. 110–289, § 3052(2), added subcl. (III).

Cited by 1

(IV) the trust satisfies the requirements of subclause (II) applied by substituting “20 percent” for “10 percent” and the 3-year average adjusted bases percentage for the taxable year (as defined in subparagraph (G)) does not exceed 10 percent, or

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(3), added subcls. (IV) and (V).

(V) the trust satisfies the requirements of subclause (III) applied by substituting “20 percent” for “10 percent” and the 3-year average fair market value percentage for the taxable year (as defined in subparagraph (H)) does not exceed 10 percent,

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(3), added subcls. (IV) and (V).

(v) in the case that the requirement of clause (iv)(I) is not satisfied, substantially all of the marketing expenditures with respect to the property were made through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not derive or receive any income, or a taxable REIT subsidiary, and

Amended 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(a)(2), struck out “, in the case of a sale on or before the termination date,” before “a taxable REIT subsidiary”.
2008 Pub. L. 110-246 Pub. L. 110–246, § 15315(b), inserted “, or, in the case of a sale on or before the termination date, a taxable REIT subsidiary” after “any income”.

(vi) the sales price of the property sold by the trust is not based in whole or in part on income or profits, including income or profits derived from the sale or operation of such property.

(E) Special rules In applying subparagraphs (C) and (D) the following special rules apply:

Amended 1978, 2004, 2005

2005 Pub. L. 109-135 Pub. L. 109–135, § 412(ii)(1), substituted “subparagraphs (C) and (D)” for “subparagraph (C)” in introductory provisions.
2004 Pub. L. 108-357 Pub. L. 108–357, § 321(a), added subpar. (D) and redesignated former subpars. (D) and (E) as (E) and (F), respectively.
1978 Pub. L. 95-600 Pub. L. 95–600, § 363(b), added subpars. (C) to (E).

(i) The holding period of property acquired through foreclosure (or deed in lieu of foreclosure), or termination of the lease, includes the period for which the trust held the loan which such property secured, or the lease of such property.

(ii) In the case of a property acquired through foreclosure (or deed in lieu of foreclosure), or termination of a lease, expenditures made by, or for the account of, the mortgagor or lessee after default became imminent will be regarded as made by the trust.

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(iii) Expenditures (including expenditures regarded as made directly by the trust, or indirectly by any partner of the trust, under clause (ii)) will not be taken into account if they relate to foreclosure property and did not cause the property to lose its status as foreclosure property.

(iv) Expenditures will not be taken into account if they are made solely to comply with standards or requirements of any government or governmental authority having relevant jurisdiction, or if they are made to restore the property as a result of losses arising from fire, storm or other casualty.

(v) The term “expenditures” does not include advances on a loan made by the trust.

(vi) The sale of more than one property to one buyer as part of one transaction constitutes one sale.

(vii) The term “sale” does not include any transaction in which the net selling price is less than $10,000.

(F) No inference with respect to treatment as inventory property The determination of whether property is described in section 1221(a)(1) shall be made without regard to this paragraph.

Amended 2004, 2005, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(b)(2), amended subpar. (F) generally. Prior to amendment, text read as follows: “In determining whether or not any sale constitutes a ‘prohibited transaction’ for purposes of subparagraph (A), the fact that such sale does not meet the requirements of subparagraph (C) or (D) shall not be taken into account; and such determination, in the case of a sale not meeting such requirements, shall be made as if subparagraphs (C), (D), and (E) had not been enacted.”
2005 Pub. L. 109-135 Pub. L. 109–135, § 412(ii)(2), substituted “subparagraph (C) or (D)” for “subparagraph (C) of this paragraph” and “subparagraphs (C), (D), and (E)” for “subparagraphs (C) and (D)”.
2004 Pub. L. 108-357 Pub. L. 108–357, § 321(a), added subpar. (D) and redesignated former subpars. (D) and (E) as (E) and (F), respectively.

(G) 3-year average adjusted bases percentage The term “3-year average adjusted bases percentage” means, with respect to any taxable year, the ratio (expressed as a percentage) of—

Amended 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(2), added subpars. (G) and (H) and redesignated former subpars. (G) and (H) as (I) and (J), respectively.
2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(b), redesignated subpar. (H) as (G), inserted at end “For purposes of the preceding sentence, the reference to subparagraph (D) shall be a reference to such subparagraph as in effect on the day before the enactment of the Housing Assistance Tax Act of 2008, as modified by subparagraph (G) as so in effect.”, and struck out former subpar. (G). Prior to amendment, text of subpar. (G) read as follows:
2008 “(i) In general.—In the case of the sale of a real estate asset (as defined in section 856(c)(5)(B)) to a qualified organization (as defined in section 170(h)(3)) exclusively for conservation purposes (within the meaning of section 170(h)(1)(C)), subparagraph (D) shall be applied—
“(I) by substituting ‘2 years’ for ‘4 years’ in clause (i), and
“(II) by substituting ‘2-year period’ for ‘4-year period’ in clauses (ii) and (iii).
2008 “(ii) Termination.—This subparagraph shall not apply to sales after the termination date.”
2008 Pub. L. 110-246 Pub. L. 110–246, § 15315(a), added subpar. (G).

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(i) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the 3 taxable year period ending with such taxable year, divided by

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(ii) the sum of the aggregate adjusted bases (as so determined) of all of the assets of the trust as of the beginning of each of the 3 taxable years which are part of the period referred to in clause (i).

(H) 3-year average fair market value percentage The term “3-year average fair market value percentage” means, with respect to any taxable year, the ratio (expressed as a percentage) of—

Amended 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(2), added subpars. (G) and (H) and redesignated former subpars. (G) and (H) as (I) and (J), respectively.
2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(b)(1), redesignated subpar. (I) as (H). Former subpar. (H) redesignated (G).
2008 Pub. L. 110-246 Pub. L. 110–246, § 15315(c), (d), added subpars. (H) and (I).

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(i) the fair market value of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the 3 taxable year period ending with such taxable year, divided by

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(ii) the sum of the fair market value of all of the assets of the trust as of the beginning of each of the 3 taxable years which are part of the period referred to in clause (i).

(I) Sales of property that are not a prohibited transaction In the case of a sale on or before the termination date, the sale of property which is not a prohibited transaction through the application of subparagraph (D) shall be considered property held for investment or for use in a trade or business and not property described in section 1221(a)(1) for all purposes of this subtitle. For purposes of the preceding sentence, the reference to subparagraph (D) shall be a reference to such subparagraph as in effect on the day before the enactment of the Housing Assistance Tax Act of 2008, as modified by subparagraph (G) as so in effect.

Amended 2008, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(2), added subpars. (G) and (H) and redesignated former subpars. (G) and (H) as (I) and (J), respectively.
2008 Pub. L. 110-289 Pub. L. 110–289, § 3051(b)(1), redesignated subpar. (I) as (H). Former subpar. (H) redesignated (G).
2008 Pub. L. 110-246 Pub. L. 110–246, § 15315(c), (d), added subpars. (H) and (I).

(J) Termination date For purposes of this paragraph, the term “termination date” has the meaning given such term by section 856(c)(10).

Amended 2015, 2018

2018 Pub. L. 115-141 Pub. L. 115–141 substituted “section 856(c)(10)” for “section 856(c)(8)”.
2015 Pub. L. 114-113 Pub. L. 114–113, § 313(a)(2), added subpars. (G) and (H) and redesignated former subpars. (G) and (H) as (I) and (J), respectively.

(7) Income from redetermined rents, redetermined deductions, and excess interest

Amended 1976, 1984, 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 545(a), added par. (7) and redesignated former pars. (7) and (8) as (8) and (9), respectively.
1984 Pub. L. 98-369 Pub. L. 98–369, § 55(b), substituted provisions relating to loss on sale or exchange of stock held 6 months or less for provisions which related to loss on sale or exchange of stock held 31 days or less.
1984 Pub. L. 98-369 Pub. L. 98–369, § 1001(b)(13), (e), substituted “6 months” for “1 year”, applicable to property acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below.
1976 Pub. L. 94-455 Pub. L. 94–455, § 1402(b)(2), provided that “9 months” would be changed to “1 year”.
1976 Pub. L. 94-455 Pub. L. 94–455, §§ 1402(b)(1)(P), 1602(b)(1), redesignated par. (5) as (7) and provided that “6 months” would be changed to “9 months” for taxable years beginning in 1977.

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(A) Imposition of tax There is hereby imposed for each taxable year of the real estate investment trust a tax equal to 100 percent of redetermined rents, redetermined deductions, excess interest, and redetermined TRS service income.

Amended 1997, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(b)(1), substituted “excess interest, and redetermined TRS service income” for “and excess interest”.
1997 Pub. L. 105-34 Pub. L. 105–34, § 1254(b)(1), substituted “subparagraph (B) or (D)” for “subparagraph (B)”.

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(B) Redetermined rents

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(c), redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and struck out former cl. (ii), which related to exception for amounts received by a REIT for services furnished or rendered by a taxable REIT subsidiary that were described in section 856(d)(1)(B) of this title, or from a taxable REIT subsidiary that were described in par. (7)(C)(ii) of such section.

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(i) In general The term “redetermined rents” means rents from real property (as defined in section 856(d)) to the extent the amount of the rents would (but for subparagraph (F)) be reduced on distribution, apportionment, or allocation under section 482 to clearly reflect income as a result of services furnished or rendered by a taxable REIT subsidiary of the real estate investment trust to a tenant of such trust.

Amended 2002, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(b)(3), substituted “subparagraph (F)” for “subparagraph (E)”.
2002 Pub. L. 107-147 Pub. L. 107–147, § 417(13), substituted “section 856(d)” for “subsection 856(d)”.
2002 Pub. L. 107-147 Pub. L. 107–147, § 413(a)(1), substituted “to the extent the amount of the rents” for “the amount of which”.

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(ii) Exception for de minimis amounts Clause (i) shall not apply to amounts described in section 856(d)(7)(A) with respect to a property to the extent such amounts do not exceed the one percent threshold described in section 856(d)(7)(B) with respect to such property.

Amended 2000, 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(c), redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and struck out former cl. (ii), which related to exception for amounts received by a REIT for services furnished or rendered by a taxable REIT subsidiary that were described in section 856(d)(1)(B) of this title, or from a taxable REIT subsidiary that were described in par. (7)(C)(ii) of such section.
2000 Pub. L. 106-554 Pub. L. 106–554 amended heading and text of cl. (ii) generally. Prior to amendment, text read as follows: “Clause (i) shall not apply to amounts received directly or indirectly by a real estate investment trust for services described in paragraph (1)(B) or (7)(C)(i) of section 856(d).”

(iii) Exception for comparably priced services Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if—

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(c), redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and struck out former cl. (ii), which related to exception for amounts received by a REIT for services furnished or rendered by a taxable REIT subsidiary that were described in section 856(d)(1)(B) of this title, or from a taxable REIT subsidiary that were described in par. (7)(C)(ii) of such section.

(I) such subsidiary renders a significant amount of similar services to persons other than such trust and tenants of such trust who are unrelated (within the meaning of section 856(d)(8)(F)) to such subsidiary, trust, and tenants, but

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(II) only to the extent the charge for such service so rendered is substantially comparable to the charge for the similar services rendered to persons referred to in subclause (I).

(iv) Exception for certain separately charged services Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if—

“any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust” Opening words

Textual readingALL OF= clause (i) does not apply

(I) the rents paid to the trust by tenants (leasing at least 25 percent of the net leasable space in the trust’s property) who are not receiving such service from such subsidiary are substantially comparable to the rents paid by tenants leasing comparable space who are receiving such service from such subsidiary, and

“Substantially” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)

(II) the charge for such service from such subsidiary is separately stated.

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(c), redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and struck out former cl. (ii), which related to exception for amounts received by a REIT for services furnished or rendered by a taxable REIT subsidiary that were described in section 856(d)(1)(B) of this title, or from a taxable REIT subsidiary that were described in par. (7)(C)(ii) of such section.

(v) Exception for certain services based on subsidiary’s income from the services Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if the gross income of such subsidiary from such service is not less than 150 percent of such subsidiary’s direct cost in furnishing or rendering the service.

Textual readingALL OF= clause (i) does not apply

“any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust”

“the gross income of such subsidiary from such service is not less than 150 percent of such subsidiary’s direct cost in furnishing or rendering the service”

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(c), redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and struck out former cl. (ii), which related to exception for amounts received by a REIT for services furnished or rendered by a taxable REIT subsidiary that were described in section 856(d)(1)(B) of this title, or from a taxable REIT subsidiary that were described in par. (7)(C)(ii) of such section.

(vi) Exceptions granted by Secretary The Secretary may waive the tax otherwise imposed by subparagraph (A) if the trust establishes to the satisfaction of the Secretary that rents charged to tenants were established on an arms’ length basis even though a taxable REIT subsidiary of the trust provided services to such tenants.

Amended 2004

2004 Pub. L. 108-357 Pub. L. 108–357, § 243(c), redesignated cls. (iii) to (vii) as (ii) to (vi), respectively, and struck out former cl. (ii), which related to exception for amounts received by a REIT for services furnished or rendered by a taxable REIT subsidiary that were described in section 856(d)(1)(B) of this title, or from a taxable REIT subsidiary that were described in par. (7)(C)(ii) of such section.

(C) Redetermined deductions The term “redetermined deductions” means deductions (other than redetermined rents) of a taxable REIT subsidiary of a real estate investment trust to the extent the amount of such deductions would (but for subparagraph (F)) be decreased on distribution, apportionment, or allocation under section 482 to clearly reflect income as between such subsidiary and such trust.

Amended 2002

2002 Pub. L. 107-147 Pub. L. 107–147, § 413(a)(2), substituted “to the extent the amount” for “if the amount”.

(D) Excess interest The term “excess interest” means any deductions for interest payments by a taxable REIT subsidiary of a real estate investment trust to such trust to the extent that the interest payments are in excess of a rate that is commercially reasonable.

(E) Redetermined TRS service income

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(b)(2), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively.

(i) In general The term “redetermined TRS service income” means gross income of a taxable REIT subsidiary of a real estate investment trust attributable to services provided to, or on behalf of, such trust (less deductions properly allocable thereto) to the extent the amount of such income (less such deductions) would (but for subparagraph (F)) be increased on distribution, apportionment, or allocation under section 482.

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(ii) Coordination with redetermined rents Clause (i) shall not apply with respect to gross income attributable to services furnished or rendered to a tenant of the real estate investment trust (or to deductions properly allocable thereto).

(F) Coordination with section 482 The imposition of tax under subparagraph (A) shall be in lieu of any distribution, apportionment, or allocation under section 482.

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(b)(2), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively.

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(G) Regulatory authority The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Until the Secretary prescribes such regulations, real estate investment trusts and their taxable REIT subsidiaries may base their allocations on any reasonable method.

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 321(b)(2), added subpar. (E) and redesignated former subpars. (E) and (F) as (F) and (G), respectively.

(8) Loss on sale or exchange of stock held 6 months or less

Amended 1986, 1988, 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 545(a), added par. (7) and redesignated former pars. (7) and (8) as (8) and (9), respectively.
1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(s)(5), substituted “in October, November, or December” for “in December” and “in such a month” for “in such month” in introductory text, “on December 31 of such calendar year” for “on such date”, in subpars. (A) and (B), and “during January” for “before February 1” in last sentence.
1986 Pub. L. 99-514 Pub. L. 99–514, § 668(b)(1)(A), added par. (8).

(A) In general If—

“to the extent of the amount described in clause (i), be treated as a long-term capital loss.” Closing words

Textual readingALL OF= loss treated as long-term capital loss

(i) subparagraph (B) or (D) of paragraph (3) provides that any amount with respect to any share or beneficial interest is to be treated as a long-term capital gain, and

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(ii) the taxpayer has held such share or interest for 6 months or less,

then any loss on the sale or exchange of such share or interest shall, to the extent of the amount described in clause (i), be treated as a long-term capital loss.

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(B) Determination of holding periods For purposes of this paragraph, in determining the period for which the taxpayer has held any share of stock or beneficial interest—

Amended 2007

2007 Pub. L. 110-172 Pub. L. 110–172 amended heading and text generally. Prior to amendment, text read as follows: “For purposes of this paragraph, the rules of paragraphs (3) and (4) of section 246(c) shall apply in determining the period for which the taxpayer has held any share of stock or beneficial interest; except that ‘6 months’ shall be substituted for the number of days specified in subparagraph (B) of section 246(c)(3).”

(i) the rules of paragraphs (3) and (4) of section 246(c) shall apply, and

(ii) there shall not be taken into account any day which is more than 6 months after the date on which such share or interest becomes ex-dividend.

(C) Exception for losses incurred under periodic liquidation plans To the extent provided in regulations, subparagraph (A) shall not apply to any loss incurred on the sale or exchange of shares of stock of, or beneficial interest in, a real estate investment trust pursuant to a plan which provides for the periodic liquidation of such shares or interests.

(9) Time certain dividends taken into account For purposes of this title, any dividend declared by a real estate investment trust in October, November, or December of any calendar year and payable to shareholders of record on a specified date in such a month shall be deemed—

Amended 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 545(a), added par. (7) and redesignated former pars. (7) and (8) as (8) and (9), respectively.

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(A) to have been received by each shareholder on December 31 of such calendar year, and

(B) to have been paid by such trust on December 31 of such calendar year (or, if earlier, as provided in section 858).

The preceding sentence shall apply only if such dividend is actually paid by the company during January of the following calendar year.

(d) Earnings and profits

Amended 1976, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 668(b)(2), amended subsec. (d) generally. Prior to amendment, subsec. (d) read as follows: “The earnings and profits of a real estate investment trust for any taxable year (but not its accumulated earnings and profits) shall not be reduced by any amount which is not allowable as a deduction in computing its taxable income for such taxable year. For purposes of this subsection, the term ‘real estate investment trust’ includes a domestic corporation, trust, or association which is a real estate investment trust determined without regard to the requirements of subsection (a).”
1976 Pub. L. 94-455 Pub. L. 94–455, § 1604(f)(3)(B), substituted “a domestic corporation, trust,” for “a domestic unincorporated trust”.

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(1) In general The earnings and profits of a real estate investment trust for any taxable year (but not its accumulated earnings) shall not be reduced by any amount which—

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 320(a)(1), amended par. (1) generally. Prior to amendment, text read as follows: “The earnings and profits of a real estate investment trust for any taxable year (but not its accumulated earnings) shall not be reduced by any amount which is not allowable in computing its taxable income for such taxable year. For purposes of this subsection, the term ‘real estate investment trust’ includes a domestic corporation, trust, or association which is a real estate investment trust determined without regard to the requirements of subsection (a).”

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(A) is not allowable in computing its taxable income for such taxable year, and

(B) was not allowable in computing its taxable income for any prior taxable year.

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(2) Coordination with tax on undistributed income A real estate investment trust shall be treated as having sufficient earnings and profits to treat as a dividend any distribution (other than in a redemption to which section 302(a) applies) which is treated as a dividend by such trust. The preceding sentence shall not apply to the extent that the amount distributed during any calendar year by the trust exceeds the required distribution for such calendar year (as determined under section 4981).

(3) Distributions to meet requirements of subsection (a)(2)(B) Any distribution which is made in order to comply with the requirements of subsection (a)(2)(B)—

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1256, added par. (3).

(A) shall be treated for purposes of this subsection and subsection (a)(2)(B) as made from earnings and profits which, but for the distribution, would result in a failure to meet such requirements (and allocated to such earnings on a first-in, first-out basis), and

Amended 1998, 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 566(a)(2), amended subpar. (A) generally. Prior to amendment, subpar. (A) read as follows: “shall be treated for purposes of this subsection and subsection (a)(2)(B) as made from the earliest earnings and profits accumulated in any taxable year to which the provisions of this part did not apply rather than the most recently accumulated earnings and profits, and”.
1998 Pub. L. 105-206 Pub. L. 105–206 substituted “earliest earnings and profits accumulated in any taxable year to which the provisions of this part did not apply” for “earliest accumulated earnings and profits (other than earnings and profits to which subsection (a)(2)(A) applies)”.

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(B) to the extent treated under subparagraph (A) as made from accumulated earnings and profits, shall not be treated as a distribution for purposes of subsection (b)(2)(B) and section 858.

Amended 1999

1999 Pub. L. 106-170 Pub. L. 106–170, § 566(b), inserted “and section 858” before period at end.

(4) Real estate investment trust For purposes of this subsection, the term “real estate investment trust” includes a domestic corporation, trust, or association which is a real estate investment trust determined without regard to the requirements of subsection (a).

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 320(a)(2), added pars. (4) and (5).

(5) Special rules for determining earnings and profits for purposes of the deduction for dividends paid For special rules for determining the earnings and profits of a real estate investment trust for purposes of the deduction for dividends paid, see section 562(e)(1).

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 320(a)(2), added pars. (4) and (5).

(e) Excess noncash income

Amended 1976, 1986

1986 Pub. L. 99-514 Pub. L. 99–514, § 664(b), added subsec. (e) and redesignated former subsec. (e) as (f).
1976 Pub. L. 94-455 Pub. L. 94–455, § 1605(b)(2), added subsec. (e).

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(1) In general For purposes of subsection (a)(1)(B), the term “excess noncash income” means the excess (if any) of—

(A) the amount determined under paragraph (2) for the taxable year, over

(B) 5 percent of the real estate investment trust taxable income for the taxable year determined without regard to the deduction for dividends paid (as defined in section 561) and by excluding any net capital gain.

(2) Determination of amount The amount determined under this paragraph for the taxable year is the sum of—

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(A) the amount (if any) by which—

(i) the amounts includible in gross income under section 467 (relating to certain payments for the use of property or services), exceed

(ii) the amounts which would have been includible in gross income without regard to such section,

(B) any income on the disposition of a real estate asset if—

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1259, redesignated subpar. (C) as (B) and substituted a comma for period at end, added subpars. (C) and (D), and struck out former subpar. (B) which read as follows: “in the case of a real estate investment trust using the cash receipts and disbursements method of accounting, the amount (if any) by which—
“(i) the amounts includible in gross income with respect to instruments to which section 1274 (relating to certain debt instruments issued for property) applies, exceed
“(ii) the amount of money and the fair market value of other property received during the taxable year under such instruments; plus”.

(i) there is a determination (as defined in section 860(e)) that such income is not eligible for nonrecognition under section 1031, and

Amended 1988

1988 Pub. L. 100-647 Pub. L. 100–647, § 1006(r), substituted “with respect to instruments” for “as original issue discount on instruments”.

(ii) failure to meet the requirements of section 1031 was due to reasonable cause and not to willful neglect,

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1259, redesignated subpar. (C) as (B) and substituted a comma for period at end, added subpars. (C) and (D), and struck out former subpar. (B) which read as follows: “in the case of a real estate investment trust using the cash receipts and disbursements method of accounting, the amount (if any) by which—
“(i) the amounts includible in gross income with respect to instruments to which section 1274 (relating to certain debt instruments issued for property) applies, exceed
“(ii) the amount of money and the fair market value of other property received during the taxable year under such instruments; plus”.

(i) the amounts includible in gross income with respect to instruments to which section 860E(a) or 1272 applies, exceed

(ii) the amount of money and the fair market value of other property received during the taxable year under such instruments, and

(D) amounts includible in income by reason of cancellation of indebtedness.

Amended 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1259, redesignated subpar. (C) as (B) and substituted a comma for period at end, added subpars. (C) and (D), and struck out former subpar. (B) which read as follows: “in the case of a real estate investment trust using the cash receipts and disbursements method of accounting, the amount (if any) by which—
“(i) the amounts includible in gross income with respect to instruments to which section 1274 (relating to certain debt instruments issued for property) applies, exceed
“(ii) the amount of money and the fair market value of other property received during the taxable year under such instruments; plus”.

(f) Real estate investment trusts to ascertain ownership

Amended 1986, 1997

1997 Pub. L. 105-34 Pub. L. 105–34, § 1251(a)(2), added subsec. (f) and redesignated former subsec. (f) as (g).
1986 Pub. L. 99-514 Pub. L. 99–514, § 664(b), added subsec. (e) and redesignated former subsec. (e) as (f).

(1) In general Each real estate investment trust shall each taxable year comply with regulations prescribed by the Secretary for the purposes of ascertaining the actual ownership of the outstanding shares, or certificates of beneficial interest, of such trust.

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(2) Failure to comply

(A) In general If a real estate investment trust fails to comply with the requirements of paragraph (1) for a taxable year, such trust shall pay (on notice and demand by the Secretary and in the same manner as tax) a penalty of $25,000.

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(B) Intentional disregard If any failure under paragraph (1) is due to intentional disregard of the requirement under paragraph (1), the penalty under subparagraph (A) shall be $50,000.

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(C) Failure to comply after notice The Secretary may require a real estate investment trust to take such actions as the Secretary determines appropriate to ascertain actual ownership if the trust fails to meet the requirements of paragraph (1). If the trust fails to take such actions, the trust shall pay (on notice and demand by the Secretary and in the same manner as tax) an additional penalty equal to the penalty determined under subparagraph (A) or (B), whichever is applicable.

(D) Reasonable cause No penalty shall be imposed under this paragraph with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.

Textual readingALL OF= no penalty imposed

“it is shown that such failure is due to reasonable cause”

“Reasonable” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)

“not to willful neglect”

(g) Limitations on designation of dividends

Amended 1997, 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 316(a), added subsec. (g) and redesignated former subsec. (g) as (h).
1997 Pub. L. 105-34 Pub. L. 105–34, § 1251(a)(2), added subsec. (f) and redesignated former subsec. (f) as (g).

(1) Overall limitation The aggregate amount of dividends designated by a real estate investment trust under subsections (b)(3)(C) and (c)(2)(A) with respect to any taxable year may not exceed the dividends paid by such trust with respect to such year. For purposes of the preceding sentence, dividends paid after the close of the taxable year described in section 858 shall be treated as paid with respect to such year.

(2) Proportionality The Secretary may prescribe regulations or other guidance requiring the proportionality of the designation of particular types of dividends among shares or beneficial interests of a real estate investment trust.

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(h) Cross reference For provisions relating to excise tax based on certain real estate investment trust taxable income not distributed during the taxable year, see section 4981.

Amended 2015

2015 Pub. L. 114-113 Pub. L. 114–113, § 316(a), added subsec. (g) and redesignated former subsec. (g) as (h).