![]() ![]() In addition to creating a TRS to hold certain assets, REITs may create a TRS to manage impermissible tenant service income. It is important to note that no more than 20% of a REIT’s total assets may be represented by securities of one or more TRS. For example, if the REIT wants to acquire a portfolio of properties but a handful of those properties are not a good long-term fit for the REIT, a TRS can acquire those assets with the intent to sell without running the risk of being subject to the REIT prohibited transaction tax (see prior article). ![]() In certain situations, a REIT may need a TRS in order to acquire a desired investment or perform certain tenant services without running afoul of the REIT restrictions.Ī REIT may use a TRS to hold assets that it cannot or does not want to hold itself. Why might a TRS be a desirable, or necessary, addition to an existing REIT structure?Īs discussed in our prior article, a REIT can serve as a tax-efficient investment vehicle as long as it abides by strict compliance rules. ![]() Almost two decades after the introduction of the TRS, these corporations are now commonly embedded in REIT structures. ![]() Since a REITs income must be primarily from passive real estate investments, the TRS was created to perform activities that cannot be performed directly by the REIT without jeopardizing REIT status. On March 31, 2021, President Biden introduced The American Jobs Plan (the Jobs Plan) which proposes raising the corporate tax rate to 28%.īy way of background, the TRS was introduced by the Tax Relief Extension Act of 1999 to provide REITs with additional flexibility. A TRS is subject to regular corporate income tax which, pursuant to the Tax Cuts and Jobs Act (TCJA), is now a flat tax rate of 21%. A taxable REIT subsidiary (“TRS”) is a corporation that is owned directly or indirectly by a REIT and has jointly elected with the REIT to be treated as a TRS for tax purposes. ![]()
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