Nareit submitted comments to the IRS on Feb. 25 with respect to proposed regulations under section 163(j).
The 2017 tax reform bill (known as the Tax Cuts and Jobs Act) modified section 163(j) generally to limit a taxpayer’s interest deductions to the sum of interest income and earnings before depreciation, taxes and amortization (EBITDA) (EBIT for taxable years after 2022) unless the taxpayer is a “real property trade or business” (RPTOB) that elects out of the limitation and depreciates its properties under the alternative depreciation system (ADS). Proposed regulations under section 163(j) included a safe harbor for REIT RPTOBs.
Among other things, Nareit requested that Treasury and the IRS permit certain controlled partnerships such as UPREITs to make the REIT RPTOB safe harbor election. Additionally, Nareit requested confirmation of the application of the interest limitation and RPTOB election for partnerships and their REIT (C Corporation) partners when the partnership holds real property but may not be engaged in a trade or business at the partnership level.
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