Gross Income
Mark Twain once said, “Buy land, they’re not making it anymore.” Perhaps it is this sentiment (along with returns on investments) that has led to the popularity of real estate investment trusts. However, taxpayers should be mindful of the various requirements and restrictions related to real estate investment trusts, such as income and asset thresholds. Based on a recent Private Letter Ruling, the Internal Revenue Service (“IRS”) noted that certain income (Section 481 adjustments) related to a real estate investment trust would not constitute gross income and, therefore run afoul of the income limitations of Section 856(c)(2) and (3) of the Internal Revenue Code.
Real Estate Investment Trusts, Generally
Generally, real estate investment trusts (“REITs”) are companies that own, finance, and/or operate income-producing real estate. REITs offer investment opportunities to shareholders to earn income from real estate without personally purchasing and/or operating properties. However, to qualify as a REIT, a company must meet several requirements. Section 856(a) of the Internal Revenue Code defines a REIT as a corporation, trust, or association:
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