2025›Instructions for Form 1120-REIT›General Instructions
Accounting Methods
Instruction 1120-REIT — Instructions for Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts · 2026-10-03 edition · updated 2026-10-04 · United States
Figure taxable income using the method of accounting regularly used in keeping the REIT’s books and records. In all cases, the method used must clearly reflect income.
Generally, permissible methods include:
Cash,
Accrual, or
Any other method authorized by the Internal Revenue Code.
Accrual method. Generally, a REIT must use the accrual method of accounting if its average annual gross receipts for the 3 prior tax years exceed $31 million. See section 448(c). For more information, see Pub. 538, Accounting Periods and Methods.
Change in accounting method. Generally, the REIT must get IRS consent to change either an overall method of accounting or the accounting treatment of any material item for income tax purposes. To obtain consent, the REIT must generally file Form 3115, Application for Change in Accounting Method. See the Instructions for Form 3115 and Pub. 538 for more information and exceptions. Also, see the Instructions for Form 3115 for procedures that may apply for obtaining automatic consent to change certain methods of accounting, non-automatic change procedures, and reduced Form 3115 filing requirements.
Section 481(a) adjustment. If the REIT’s taxable income for the current tax year is figured under a method of accounting different from the method used in the preceding tax year, the REIT may have to make an adjustment under section 481(a) to prevent amounts of income or expenses from being duplicated or omitted. This is referred to as a “section 481(a) adjustment.” The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. However, in some cases, a REIT can elect to modify the section 481(a) adjustment period for a net positive adjustment. The REIT must complete the appropriate lines of Form 3115 to make the election. See the Instructions for Form 3115 for more information and exceptions. If the net section 481(a) adjustment is positive, report it on line 7 as other income. If the net section 481(a) adjustment is negative, report it on line 19 as a deduction.
Note: Include any net positive section 481(a) adjustment on Part I, line 7. Report any negative adjustment on Part I, line 19.
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