Schedule J — 2025 Inst 1066 (PDF)

Part I—Tax on Net Income From Prohibited Transactions

Losses not included. Don’t net losses from prohibited transactions against income or gains from prohibited transactions in determining the amounts to enter on lines 1a through 1d. These losses aren’t deductible in computing net income from prohibited transactions.

For purposes of lines 1a and 1d, the term “prohibited transactions” doesn’t include any disposition that is required to prevent default on a regular interest where the threatened default resulted from a default on one or more qualified mortgages, or to facilitate a clean-up call. A clean-up call is the redemption of a class of regular interests when, by reason of prior payments with respect to those interests, the administrative costs associated with servicing that class outweigh the benefits of maintaining the class. It doesn’t include the redemption of a class in order to profit from a change in interest rates.

Line 1a—Gain from certain dispositions of qualified mortgages. Enter the amount of gain from the disposition of any qualified mortgage transferred to the REMIC other than a disposition from:

The substitution of a qualified replacement mortgage for a qualified mortgage or the repurchase in lieu of substitution of a defective obligation;

Line 1b—Income from nonpermitted assets. Enter the amount of any income received or accrued during the year attributable to any asset other than a qualified mortgage or permitted investment. See section 860G(a) for definitions.

Line 1c—Compensation for services. Enter the receipt by the REMIC of any amount representing a fee or other compensation for services.

Line 1d—Gain from the disposition of cash flow in- vestments (except from a qualified liquidation). Enter the amount of gain from the disposition of any cash flow investment except from a qualified liquidation. A cash flow investment is any investment of amounts received under qualified mortgages for a temporary period (not more than 13 months) before distribution to holders of interests in the REMIC. See section 860F(a)(4) for the definition of a qualified liquidation.

Part II—Tax on Net Income From Foreclosure Property For a definition of foreclosure property, see the instructions for Schedule L, line 1c, later. Net income from foreclosure property must also be included in the computation of taxable income (or net loss) shown on Form 1066, page 1, Section I.

Line 6—Gross income from foreclosure property. Don’t include on line 6 amounts described in section 856(c)(3)(A), (B), (C), (D), (E), or (G).

Line 8—Deductions. Only those expenses that are directly connected with the production of the income shown on line 7 may be deducted to figure net income from foreclosure property. Allowable deductions include depreciation on foreclosure property, interest accrued on debt of the REMIC attributable to the carrying of foreclosure property, real estate taxes, and fees charged by an independent contractor to manage foreclosure property. Don’t deduct general overhead and administrative expenses.

Line 10—Tax on net income from foreclosure proper- ty. The REMIC is allowed a deduction for the amount of tax shown on this line. Include this amount in computing the deduction for taxes entered on Form 1066, page 1, Section I, line 11.

Part III—Tax on Contributions After the Startup Day Don’t complete this part if the startup day was before July 1, 1987. For this purpose, startup day means any day selected by a REMIC that is on or before the first day on which interests in the REMIC are issued.

Line 11—Tax. Enter the amount of contributions received during the calendar year after the startup day (as defined in the prior paragraph). See section 860G(d). Don’t include cash contributions described next.

Any contribution to facilitate a clean-up call or a qualified liquidation.
The foreclosure, default, or imminent default of the mortgage;
Any payment in the nature of a guarantee.
Any contribution during the 3-month period beginning on the startup day.
The bankruptcy or insolvency of the REMIC; or
A qualified liquidation. See section 860F(a) for details and exceptions.

Instructions for Form 1066 (2025) 7

Any contribution to a qualified reserve fund by any holder of a residual interest in the REMIC.

Attach a statement showing your computation.

Additional Information Be sure to answer the questions and provide other information in items E through L.

Item E—Type of entity. Check the box for the entity type of the REMIC recognized under state or local law. If the REMIC isn’t a separate entity under state or local law, check the box for “Segregated Pool of Assets” and state the name and type of entity that owns the assets in the spaces provided.

Item F—Number of residual interest holders. Enter the number of persons who were residual interest holders at any time during the tax year.

Item G—Electing out of the centralized partnership audit regime. A REMIC with only one residual interest holder at all times during the tax year doesn’t need to complete item G because the REMIC isn’t subject to the centralized partnership audit regime. If the REMIC had more than one residual interest holder at any time during the tax year, it may be eligible to elect out of the centralized partnership audit regime for the tax year if it has 100 or fewer residual interest holders in that year, each of which is either an individual, a C corporation, a foreign entity that would be treated as a C corporation if it was domestic, an S corporation, or an estate of a deceased residual interest holder. The election is made annually by checking the box on item G of a timely filed Form 1066. If the REMIC makes this election, it must also attach Schedule B-2 (Form 1065) to Form 1066 and provide all of the information requested on the Schedule B-2 for each residual interest holder and the shareholders of any S corporation residual interest holders. The REMIC must notify each residual interest holder of the election within 30 days of making the election.

If the REMIC had more than one residual interest holder at any time during the tax year and didn’t elect out of the centralized partnership audit regime, it must complete the Designation of Partnership Representative on page 4 of Form 1066. For more information, see Designation of Partnership Representative , later.

If the “Yes” box is checked, do the following.

Enter the name of the foreign country or countries where the foreign account(s) is held in the space provided on the form. Attach a separate sheet if more space is needed.
Electronically file FinCEN Form 114, also referred to as FBAR, with the Department of the Treasury using the FinCEN’s BSA E-Filing System. Because FinCEN Form 114 isn’t a tax form, don’t file it with Form 1066. Go to FinCEN.gov for more information.

Item I—Foreign trust. The REMIC may be required to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, if:

It directly or indirectly transferred money or property to a foreign trust (for this purpose, any U.S. person who created a foreign trust is considered a transferor);
It is treated as the owner of any part of the assets of a foreign trust under the grantor trust rules; or
It received a distribution from a foreign trust. For more information, see the Instructions for Form

Item H—Foreign financial accounts. Check the “Yes” box if either (1) or (2) below applies to the REMIC. Otherwise, check the “No” box.

At any time during the 2025 calendar year, the REMIC had a financial interest in or signature or other authority over any foreign financial account, including bank, securities, or other types of financial accounts in a foreign country (see FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR)); and

a. The combined value of the accounts was more than $10,000 at any time during the calendar year, and

b. The account wasn’t with a U.S. military banking facility operated by a U.S. financial institution.

The REMIC owns more than 50% of the stock in any corporation that would answer “Yes” to item 1 above.

Note: An owner of a foreign trust must ensure that the trust files an annual information return on Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. For details, see the Instructions for Form 3520-A.

To report information required under section 6038B, the REMIC may be required to file Form 926, Return by a U.S. Transferor of Property to a Foreign Corporation; or Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships. See the instructions for these forms for more information.

Item L—Sum of the daily accruals. Enter the total of the daily accruals for all residual interests for the calendar year. See section 860E(c)(2) for details.