Proposed regulations - Definitions of “real property” for REITs 

May 9: The Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-150760-13) that define real property terms for purposes of real estate investment trusts—REITs.

Read the nine-page proposed regulations [PDF 250 KB]


Comments and / or requests to speak at a public hearing scheduled for September 18, 2014, are due by a date that is 90 days after publication in the Federal Register (which is scheduled for May 13, 2014).

Reasons for proposed regulations

The preamble to today’s proposed regulations explains that the IRS issued revenue rulings between 1969 and 1975 addressing whether certain assets qualify as real property for purposes of section 856—e.g., assets such as railroad properties, mobile home units permanently installed in a planned community, air rights over real property, interests in mortgage loans secured by total energy systems, and mortgage loans secured by microwave transmission property.


These revenue rulings addressed whether the assets qualify as either real property or interests in real property under section 856.


Subsequently, REITs sought to invest in various types of assets that were not directly addressed by the regulations or the published revenue rulings, and asked for and received private letter rulings from the IRS addressing certain of these assets. Because private rulings are limited to their particular facts and may not be relied upon by taxpayers other than the taxpayer that received the letter ruling, these are not substitutes for published guidance.


As the preamble further explains, the IRS and Treasury have recognized the need to provide additional published guidance on the definition of real property under sections 856 through 859. Hence, today’s proposed regulations define real property for purposes of sections 856 through 859 by providing a framework to analyze the types of assets in which REITs seek to invest.


These proposed regulations provide neither explicit nor implicit guidance regarding whether various types of income are described in section 856(c)(3).

Proposed regulations

Today’s proposed regulations define “real property” to include land, inherently permanent structures, and structural components.


In determining whether an item is land, an inherently permanent structure, or a structural component, the proposed regulations first test whether the item is a distinct asset (which is the unit of property to which the definitions in these proposed regulations apply).


In addition, the proposed regulations:


  • Identify certain types of intangible assets that are real property or interests in real property for purposes of sections 856 through 859
  • Include examples to illustrate the application of the principles of these proposed regulations to determine whether certain distinct assets are real property for purposes of sections 856 through 859



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