Part I—Real Estate — Instruction 1120-REIT

Include in Part I the REIT’s share of gross income from partnerships in which the REIT is a partner, and the deductions attributable to the gross income items. See Regulations section 1.856-3(g).

Real estate investment trust taxable income does not include the following.

Gross income, gains, losses, and deductions from foreclosure property (defined in section 856(e)). If the aggregate of such amounts results in net income, report these amounts in Part II.
Income or deductions from any prohibited transaction (defined in section 857(b)(6)) resulting in a gain. Report these amounts in Part IV.

Income

Line 1. Dividends. Enter the total amount of dividends received during the tax year.

Line 2. Interest. Enter taxable interest on U.S. obligations and on loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds, etc. Do not offset interest expense against interest income. Special rules apply to interest income from certain below-market-rate loans. See section 7872 for details.

Report tax-exempt interest income on Form 1120-REIT, Schedule K, line 8. Do not include tax-exempt interest on line 2. Also, if required, include the same amount on Schedule M-1, line 7.

Include interest income from tax credit bonds on line 2.

Line 5. Capital gain net income. Every sale or exchange of a capital asset must be reported on Schedule D (Form 1120), Capital Gains and Losses, even if there is no gain or loss.

Line 7. Other income. Enter any other taxable income not reported on lines 1 through 6, except amounts that must be reported in Part II or IV.

Enter amounts included in income under the section 951A GILTI provisions. See Form 8992, Part II, line 5, and the Instructions for Form 8992. Also, consider the applicability of section 951A with respect to controlled foreign corporations owned by domestic partnerships in which the REIT has an interest. If the REIT also has a Form 5471 reporting requirement, attach the form.

List the type and amount of income on an attached schedule. If the REIT has only one item of other income, describe it in parentheses on line 7. Examples of other income to report on line 7 include the following.

Amounts received or accrued as consideration for entering into agreements to make real property loans or to purchase or lease real property.
Recoveries of bad debts deducted in prior years under the specific charge-off method.
Refunds of taxes deducted in prior years if they reduced income subject to tax in the year deducted (see section 111). Do not offset current-year taxes against tax refunds.
Any deduction previously taken under section 179A that is subject to recapture. The REIT must recapture the benefit of any allowable deduction for clean-fuel vehicle property (or clean-fuel vehicle refueling property), if the property later ceases to qualify. See Regulations section 1.179A-1 for details.

Line 3. Gross rents. Include the following.

Charges for customary services that may qualify as rents from real property are described in Regulations section 1.856-4(b)(1). Services customarily furnished to tenants of a REIT include parking facilities. See Rev. Rul. 2004-24, 2004-10 I.R.B. 550, for guidance to determine whether amounts received by a REIT that provides parking facilities at its rental real properties qualify as rents from real property.
Rent from personal property leased under or with a lease of real property (but only if the rent from the personal property does not exceed 15% of the total rent for the tax year charged for both the real and personal property under such lease). Figure the percentage of rents from personal property by comparing the FMV of the personal rental property to the FMV of the total rental property. See section 856(d)(1) for details.
Rent from a taxable REIT subsidiary (TRS) either (a) if at least 90% of the leased space of the property is leased to persons other than TRSs of the REIT and other than persons described in section 856(d)(2)(B) at rents comparable to the rent paid by the other tenants of the REIT for comparable space; or (b) for certain lodging facilities or health care property operated by an eligible independent contractor. For more information, including definitions and additional requirements, see sections 856(d)(8) and 856(d)(9). Also, see Rev. Proc. 2003-66, 2003-33 I.R.B. 364, for the special rules on rents paid to a REIT by certain joint ventures that include a TRS.

See section 856(d)(2) for amounts excluded from “rents from real property.”

Line 4. Other gross rents. Enter the gross amount received for renting property not included on line 3.

Ordinary income from trade or business activities of a partnership (from Schedule K-1 (Form 1065)). Do not offset ordinary losses against ordinary income. Instead, include the losses on line 19 of Form 1120-REIT. Show the partnership’s name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one partnership, identify the amount from each partnership.
Form 965-B must be completed by an electing REIT for every tax year for which the REIT has any section 965 amounts taken into account in accordance with section 965(m) or not fully taken into account at any point during the tax year. For more information, see Form 965-B and the related instructions.

Deductions

Limitations on Deductions

Section 263A uniform capitalization rules. The uniform capitalization rules of section 263A generally require REITs to capitalize certain costs to inventory or other property.

REITs subject to the section 263A uniform capitalization rules are required to capitalize:

Direct costs of assets produced or acquired for resale, and

Any net positive section 481(a) adjustment. See Section 481(a) adjustment, earlier.

• Income from cancellation of debt (COD) from the repurchase of a debt instrument for less than its adjusted issue price.

If the REIT elected to take section 965(a) inclusions and corresponding section 965(c) deductions into account over 8 years in accordance with section 965(m), include the current-year net section 965 inclusion (the section 965(a) inclusion less the corresponding section 965(c) deduction) on this line 7. You must also complete and attach Form 965-B, Corporate and Real Estate Investment Trust (REIT) Report of Net 965 Tax Liability and Electing REIT Report of 965 Amounts.

Instructions for Form 1120-REIT (2025) 9

Certain indirect costs (including taxes) that are properly allocable to property produced or property acquired for resale.

A REIT cannot deduct the costs required to be capitalized under section 263A until it sells, uses, or otherwise disposes of the property (to which the costs relate). The REIT recovers these costs through depreciation, amortization, or costs of goods sold.

For more details, including exemptions to the uniform capitalization rules, see Pub. 538. See section 263A(i) for exemption for certain small businesses. For non-small business taxpayers, see Regulations sections 1.263A-1 through 1.263A-3. See section 263A(d), Regulations section 1.263A-4, and Pub. 225 for rules for property produced in a farming business.

Transactions between related taxpayers. Generally, an accrual basis taxpayer may only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. See sections 163(e) (3) and 267 for limitations on deductions for unpaid interest and expenses.

Limitations on business interest expense. Business interest expense may be limited. See section 163(j) and Form 8990. Also, see Limitation on deduction in the instructions for line 15 and Schedule K, Question 11, later.

Golden parachute payments. A portion of the payments made by a REIT to key personnel that exceeds their usual compensation may not be deductible. This occurs when the REIT has an agreement (golden parachute) with these key employees to pay them these excessive amounts if control of the REIT changes. See section 280G and Regulations section 1.280G-1. Also, see the instructions for line 9, later.

Business start-up and organizational costs. A REIT can elect to deduct a limited amount of start-up and organizational costs it paid or incurred. Any remaining costs must generally be amortized over a 180-month period. See sections 195 and 248 and the related regulations.

Time for making an election. The REIT generally elects to deduct start-up or organizational costs by claiming the deduction on its income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins.

For more details, see the Instructions for Form 4562, Depreciation and Amortization.

If the REIT timely filed its return for the year without making an election, it can still make an election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on the amended return and write “Filed pursuant to section 301.9100-2” at the top of the amended return. File the amended return at the same address the REIT filed its original return. The election applies when figuring taxable income for the current tax year and all subsequent years.

The REIT can choose to forgo the elections above by clearly electing to capitalize its start-up or organizational costs on an income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins.

The election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to the trade or business.

Report the deductible amount of such costs and any amortization on line 19. For amortization that begins during the current tax year, complete and attach Form 4562.

Passive activity and at-risk limitations. Loss and credit limitations under sections 465 and 469 apply to REITs that are closely held, as described in sections 465(a)(1)(B) and 469(j)(1). REITs subject to sections 465 and 469 must complete Forms 6198 and 8810 to compute allowable losses or credits. Before

completing Form 8810, see Temporary Regulations section 1.163-8T for rules on allocating interest expense among activities.

Reducing certain expenses for which credits are allowable. For each credit listed below, the REIT must reduce the otherwise allowable deductions for expenses used to figure the credit by the amount of the current-year credit. Do not reduce the amount of the allowable deduction for any portion of the credit that was passed through to the REIT from a pass-through entity on Schedule K-1.

Employment credits. See the instructions for line 10, later.
Disabled access credit (Form 8826).
Credit for employer social security and Medicare taxes paid on certain employee tips (Form 8846).
Credit for small employer pension plan start-up costs (Form 8881).
Credit for employer-provided childcare facilities and services (Form 8882).

If the REIT is eligible to claim any of these credits, figure each current-year credit before figuring the deduction for expenses on which the credit is based. If the REIT capitalized any costs on which it figured the credit, reduce the amount capitalized by the credit attributable to these costs.

See the instructions for the form used to figure the applicable credit.

Line 9. Compensation of officers. Enter the deductible officers’ compensation on line 9. Do not include compensation deductible elsewhere on the return, such as elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

If the REIT’s total receipts are $500,000 or more, complete and attach Form 1125-E. Total receipts are figured by adding:

Part I, line 8;
Net capital gain from Part III, line 10; and
Form 2438, line 9a. Enter on line 9 the amount from Form 1125-E, line 4.

Line 10. Salaries and wages. Enter the total salaries and wages paid for the tax year, reduced by the amount claimed on:

Form 5884, Work Opportunity Credit;
Form 8844, Empowerment Zone Employment Credit;
Form 8932, Credit for Employer Differential Wage Payments; and
Form 8994, Employer Credit for Paid Family and Medical Leave.

See the instructions for these forms for more information. Do not include salaries and wages deductible elsewhere on the return, such as amounts included in officers compensation, elective contributions to a section 401(k) cash or deferred arrangement, or amounts contributed under a salary reduction SEP agreement or a SIMPLE IRA plan.

If the REIT provided taxable fringe benefits to its employees, such as personal use of a car, do not deduct as wages the amounts allocated for depreciation and other expenses claimed on lines 16 and 19.

If the REIT claims a credit for any wages paid or incurred, it may need to reduce any corresponding deduction for officers’ compensation and salaries and wages. See the instructions for the form used to figure the applicable credit for more details

Line 11. Repairs and maintenance. Enter the cost of repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that are not payments to produce or improve tangible or real property. See Regulations section 1.263(a)-1. For example, amounts are paid for improvements if they are for betterments to the property, restorations of the property (such as

10 Instructions for Form 1120-REIT (2025)

replacements of major components or substantial structural parts), or if they adapt the property to a new or different use. Amounts paid to produce or improve property must be capitalized. See Regulations sections 1.263(a)-2 and -3. The REIT can deduct repair and maintenance expenses only to the extent they relate to a trade or business activity. See Regulations section 1.162-4. The REIT may elect to capitalize certain repair and maintenance costs consistent with its books and records. See Regulations section 1.263(a)-3(n) for information on how to make the election.

Line 12. Bad debts. Enter the total debts that became worthless in whole or in part during the tax year. A cash basis taxpayer may not claim a bad debt deduction unless the amount was previously included in income.

Line 13. Rents. If the REIT rented or leased a vehicle, enter the total annual rent or lease expense paid or incurred during the year. Also, complete Part V of Form 4562. If the REIT leased a vehicle for a term of 30 days or more, the deduction for the vehicle lease expense may have to be reduced by an amount called the inclusion amount.

The REIT may have an inclusion amount if:

The deduction for interest is limited when the REIT is a policyholder or beneficiary with respect to a life insurance, endowment, or annuity contract issued after June 8, 1997. For details, see section 264(f). Attach a statement showing the computation of the deduction.

The REIT must make an interest allocation if the proceeds of a loan were used for more than one purpose. For example, the loan proceeds were used to purchase a financial investment and acquire an interest in a passive activity. See Temporary Regulations section 1.163-8T for the interest allocation rules.

The following interest is not deductible.

Interest on indebtedness incurred or continued to purchase or carry obligations if the interest is wholly exempt from income tax. See section 265(b) for special rules and exceptions for financial institutions. Also, see section 265(b)(7) for a temporary de minimis safe-harbor exception for certain financial institutions for tax-exempt bonds issued in 2009 and 2010.
For cash basis taxpayers, prepaid interest allocable to years following the current tax year (for example, a cash basis calendar year taxpayer who in 2025 prepaid interest allocable to any period after 2025 can deduct only the amount allocable to 2025).
Interest and carrying charges on straddles. Generally, these amounts must be capitalized. See section 263(g).

The lease term began:

Cars (excluding trucks and vans):

And the vehicle’s FMV on the first day of the

lease exceeded:

After 12/31/23 but before 1/1/26 . . . $62,000

After 12/31/22 but before 1/1/24 . . $60,000

After 12/31/21 but before 1/1/23 . . . $56,000

After 12/31/20 but before 1/1/22 . . . $51,000

After 12/31/17 but before 1/1/21 . . . $50,000

After 12/31/12 but before 1/1/18 . . . $19,000

Trucks and vans:

After 12/31/23 but before 1/1/26 . . . $62,000

After 12/31/22 but before 1/1/24 . . . $60,000

After 12/31/21 but before 1/1/23 . . . $56,000

After 12/31/20 but before 1/1/22 . . . $51,000

After 12/31/17 but before 1/1/21 . . . $50,000

After 12/31/13 but before 1/1/18 . . . $19,500

After 12/31/09 but before 1/1/14 . . . $19,000

See Pub. 463, Travel, Gift, and Car Expenses, for instructions on figuring the inclusion amount. The inclusion amount for lease terms beginning in 2026 will be published in the Internal Revenue Bulletin in early 2026.

Line 14. Taxes and licenses. Enter taxes paid or incurred during the tax year, but do not include the following.

Federal income taxes (except for the tax imposed on net recognized built-in gain allocable to ordinary income).
Foreign or U.S. territory income taxes if a tax credit is claimed (however, see the Instructions for Form 5735 for special rules for territory income taxes).
Taxes not imposed on the REIT.
Taxes, including state or local sales taxes, that are paid or incurred in connection with an acquisition or disposition of property (these taxes must be treated as a part of the cost of the acquired property or, in the case of a disposition, as a reduction in the amount realized on the disposition).
Taxes assessed against local benefits that increase the value of the property assessed (such as for paving, etc.).
Taxes deducted elsewhere on the return.
Excise taxes imposed under section 4981 on undistributed REIT income.

See section 164(d) for information on apportionment of taxes on real property between the seller and the purchaser.

Line 15. Interest. Do not offset interest income against interest expense.

Interest paid or incurred on any portion of an underpayment of tax that is attributable to an understatement arising from an undisclosed listed transaction or an undisclosed reportable avoidance transaction (other than a listed transaction) entered into in tax years beginning after October 22, 2004.

Limitation on deduction. Under section 163(j), business interest expense is generally limited to the sum of business interest income, 30% of the adjusted taxable income, and floor plan financing interest. Business interest expense includes any interest paid or accrued on indebtedness properly allocable to a trade or business.

A taxpayer, other than a tax shelter, that meets the gross receipts test is not required to limit business interest expense under section 163(j). A taxpayer meets the gross receipts test if the taxpayer has average annual gross receipts of $31 million or less for the 3 prior tax years. Gross receipts generally include the aggregate gross receipts from all persons treated as a single employer such as a controlled group of corporations, commonly controlled partnerships or proprietorships, and affiliated service groups.

If the REIT fails to meet the gross receipts test, Form 8990 is generally required. An electing real property trade or business is excepted from the interest expense limitation of section 163(j). See section 163(j)(7), Form 8990, and the related instructions. Also, see the questions on Schedule K, line 10, for business interest expense elections, and on Schedule K, line 11, regarding conditions for filing Form 8990.

Special rules apply to:

Foregone interest on certain below-market-rate loans (see section 7872).
Original issue discount (OID) on certain high-yield discount obligations. See section 163(e)(5) to determine the amount of the deduction for OID that is deferred and the amount that is disallowed on a high-yield discount obligation.

Line 16. Depreciation. Include on line 16 depreciation and the cost of certain property that the REIT elected to expense under section 179. See Form 4562 and the related instructions to figure the amount to enter on this line.

Line 18. Energy efficient commercial buildings deduction. Complete and attach Form 7205 if claiming the energy efficient building deduction. See the Instructions for Form 7205 for more information. Also, see section 179D.

Line 19. Other deductions. Attach a statement listing, by type and amount, all allowable deductions that are not deductible

Instructions for Form 1120-REIT (2025) 11

elsewhere on the return. Enter the total on line 19. Include amortization and organization expenses. Generally, a deduction may not be taken for any amount that is allocable to a class of exempt income. See section 265(b) for exceptions.

Examples of other deductions include the following.

Amortization (see Form 4562).
Certain business start-up and organizational costs that the REIT elects to deduct.
Depletion. Attach Form T (Timber), Forest Activities Schedule, if a deduction for depletion of timber is taken.
Reforestation costs. The REIT can elect to deduct up to $10,000 of qualified reforestation expenses for each qualifying timber property. The REIT can elect to amortize over 84 months any amount not deducted.
Insurance premiums.
Legal and professional fees.
Supplies used and consumed in the business.
Utilities.
Ordinary losses from trade or business activities of a partnership (from Schedule K-1 (Form 1065)). Do not offset ordinary income against ordinary losses. Instead, include the income on line 7. Show the partnership’s name, address, and EIN on a separate statement attached to this return. If the amount is from more than one partnership, identify the amount from each partnership.
Any net negative section 481(a) adjustment. See Section 481(a) adjustment , earlier. Do not deduct expenses such as the following.
Fines or penalties paid to a government for violating any law. However, exceptions apply for certain amounts paid or incurred after December 21, 2017. See section 162(f), as amended by P.L. 115-97, section 13306 (discussed later).
Lobbying expenses. However, see exceptions (discussed later).
Amounts paid or incurred after December 22, 2017, for any settlement, payout, or attorney fees related to sexual harassment or sexual abuse, if such payments are subject to a nondisclosure agreement. See new section 162(q).

Charitable contributions. Enter contributions or gifts actually paid within the tax year to or for the use of charitable and governmental organizations described in section 170(c) and any unused contributions carried over from prior years.

REITs reporting taxable income on the accrual method may elect to treat as paid during the tax year any deductible contributions paid by the due date of the REIT’s tax return (not including extensions) if the contributions were authorized by the board of directors during the tax year. Attach a declaration to the return stating that the resolution authorizing the contributions was adopted by the board of directors during the tax year. The declaration must include the date the resolution was adopted. See Regulations section 1.170(a)(2)(B).

tax year, the 10% limit is applied using the taxable income after taking into account any deduction for the NOL.

To figure the amount of any remaining NOL carryover to later years, taxable income must be modified (see section 172(b)). To the extent that contributions are used to reduce taxable income for this purpose and increase an NOL carryover, a contributions carryover is not allowed. See section 170(d)(2)(B).

Cash contributions. For contributions of cash, check, or other monetary gifts (regardless of the amount), the REIT must maintain a bank record, or a receipt, letter, or other written communication from the donee organization indicating the name of the organization, the date of the contribution, and the amount of the contribution.

Contributions of $250 or more. A REIT can deduct a contribution of $250 or more only if the REIT receives a written acknowledgment from the donee organization that shows the amount of cash contributed, describes any property contributed, and gives a description and a good faith estimate of the value of any goods or services provided in return for the contribution, or states that no goods or services were provided in return for the contribution. The acknowledgment must be obtained by the due date (including extensions) of the REIT’s return, or, if earlier, the date the return is filed. Do not attach the acknowledgment to the tax return, but keep it with the REIT’s records.

For more information on charitable contributions, including substantiation and recordkeeping requirements, see section 170 and the related regulations, and Pub. 526, Charitable Contributions. For special rules that apply to corporations, see Pub. 542.

Pension, profit-sharing, etc., plans. Include the deduction for contributions to qualified pension, profit-sharing, or other funded deferred compensation plans. Employers who maintain such a plan must generally file one of the forms listed below unless exempt from filing under regulations or other applicable guidance, even if the plan is not a qualified plan under the Internal Revenue Code. The filing requirement applies even if the REIT does not claim a deduction for the current tax year. There are penalties for failure to file these forms on time and for overstating the pension plan deduction. See sections 6652(e) and 6662(f). Also, see the instructions for the applicable forms.

Form 5500, Annual Return/Report of Employee Benefit Plan.
Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, instead of Form 5500, generally if under 100 participants at the beginning of the plan year. Note: Form 5500 and Form 5500-SF must be filed electronically under the computerized ERISA Filing Acceptance System (EFAST2). For more information, see the EFAST2 website at EFAST.dol.gov .
Form 5500-EZ, Annual Return of One-Participant (Owners/ Partners and Their Spouses) Retirement Plan or a Foreign Plan. File this form for a plan that only covers the owner (or the owner and spouse) or a foreign plan that is required to file an annual return and does not file the annual return electronically on Form 5500-SF. See the Instructions for Form 5500-EZ.

Limitation on deduction. Generally, the total amount claimed may not be more than 10% of taxable income (the sum of Part I, line 23; Part II, line 5; Part IV, line 3; and Form 2438, line 11) computed without regard to the following.

Any deduction for contributions.
The limitation under section 249 on the deduction for bond premium.
Any net operating loss (NOL) carryback to the tax year under section 172.
Any capital loss carryback to the tax year under section 1212(a)(1). Carryover. Charitable contributions that exceed the 10% limitation cannot be deducted for the tax year but may be carried over to the next 5 tax years.

Special rules apply if the REIT has an NOL carryover to the tax year. In figuring the charitable contributions deduction for the

Travel, meals, and entertainment. Subject to limitations and restrictions discussed below, a REIT can deduct ordinary and necessary travel, meals, and non-entertainment expenses paid or incurred in its trade or business. Generally, entertainment expenses, membership dues, and facilities used in connection with these activities cannot be deducted. In addition, no deduction is generally allowed for qualified transportation fringe benefits. Also, special rules apply to deductions for gifts, luxury water travel, and convention expenses. See section 274 and Pub. 463, for more details.

Travel. A REIT cannot deduct travel expenses of any individual accompanying a corporate officer or employee,

12 Instructions for Form 1120-REIT (2025)

including a spouse or dependent of the officer or employee, unless:

That individual is an employee of the REIT, and
That individual’s travel is for a bona fide business purpose and would otherwise be deductible by that individual.

costs of any investigation or litigation are not eligible for the exceptions and are nondeductible. See section 162(f).

Amounts paid or incurred in connection with influencing federal, state, or local legislation; or

Lobbying expenses. Generally, lobbying expenses are not deductible. These expenses include:

Meals. Generally, the REIT can deduct only 50% of the amount otherwise allowable for non-entertainment related meal expenses paid or incurred in its trade or business.

Meals not separately stated from entertainment are generally not deductible. In addition (subject to exceptions under section 274(k)(2)):

Meals must not be lavish or extravagant, and
An employee of the REIT must be present at the meal. See section 274(n)(3) for a special rule that applies to expenses for meals consumed by individuals subject to the hours of service limits of the Department of Transportation.

Qualified transportation fringes (QTFs). Generally, no deduction is allowed under section 274(a)(4) for QTFs provided by employers to their employees. QTFs are defined in section 132(f)(1) and include:

Transportation in a commuter highway vehicle between the employee’s residence and place of employment,
Amounts paid or incurred in connection with any communication with certain federal executive branch officials in an attempt to influence the official actions or positions of the officials. See Regulations section 1.162-29 for the definition of “influencing legislation.”
Any transit pass, and
Qualified parking. See section 274 and Pub. 15-B for details.

Membership dues. The REIT can deduct amounts paid or incurred for membership dues in civic or public service organizations, professional organizations (such as bar and medical associations), business leagues, trade associations, chambers of commerce, boards of trade, and real estate boards. However, no deduction is allowed if a principal purpose of the organization is to entertain or provide entertainment facilities to members or their guests. In addition, REITs cannot deduct membership dues to any club organized for business, pleasure, recreation, or other social purpose. This includes country clubs, golf and athletic clubs, airline and hotel clubs, and clubs operated to provide meals under conditions favorable to business discussion.

Entertainment facilities. Generally, the REIT cannot deduct an expense paid or incurred for a facility (such as a yacht or hunting lodge) used for an activity usually considered entertainment, amusement, or recreation.

Amounts treated as compensation. Generally, the REIT may be able to deduct otherwise nondeductible meals, travel, and entertainment expenses if the amounts are treated as compensation to the recipient and reported on Form W-2 for an employee or on Form 1099-NEC for an independent contractor.

However, if the recipient is an officer, director, beneficial owner (directly or indirectly), or other “specified individual” (as defined in section 274(e)(2)(B) and Regulations section 1.274-9(b)), special rules apply.

Fines or similar penalties. Generally, no deduction is allowed for fines or similar penalties paid or incurred to, or at the direction of a government or governmental entity for violating any law, or for the investigation or inquiry into the potential violation of a law, except:

Amounts that constitute restitution;
Amounts paid to come into compliance with the law;
Amounts paid or incurred as the result of orders or agreements in which no government or governmental entity is a party; and
Amounts paid or incurred for taxes due. No deduction is allowed unless the amounts are specifically identified in the order or agreement and the REIT establishes that the amounts were paid for that purpose. Also, any amount paid or incurred as reimbursement to the government for the

Dues and other similar amounts paid to certain tax-exempt organizations may not be deductible. If certain in-house lobbying expenditures do not exceed $2,000, they are deductible.

Line 21. Taxable income before NOL deduction, total de- duction for dividends paid, and section 857(b)(2)(E) de- duction. Generally, special at-risk rules under section 465 apply to closely held corporations engaged in any activity as a trade or business or for the production of income. Those REITs that are closely held may have to adjust the amount on line 21.

The at-risk rules do not apply to:

Holding real property placed in service by the taxpayer before 1987;
Equipment leasing under sections 465(c)(4), (5), and (6); or
Any qualifying business of a qualified REIT under section 465(c)(7). However, the at-risk rules do apply to the holding of mineral property.

If the at-risk rules apply, adjust the amount on this line for any section 465(d) losses. These losses are limited to the amount for which the REIT is at risk for each separate activity at the close of the tax year. If the REIT is involved in one or more activities, any of which incurs a loss for the year, report the losses for each activity separately. Attach Form 6198, At-Risk Limitations, showing the amount at risk and gross income and deductions for the activities with the losses.

If the REIT sells or otherwise disposes of an asset or its interest (either total or partial) in an activity to which the at-risk rules apply, determine the net profit or loss from the activity by combining the gain or loss on the sale or disposition with the profit or loss from the activity. If the REIT has a net loss, it may be limited because of the at-risk rules.

Treat any loss from an activity not allowed for the tax year as a deduction allocable to the activity in the next tax year.

Line 22a. Net operating loss deduction. A REIT can use the net operating loss (NOL) incurred in one tax year to reduce its taxable income in another tax year.

Generally, a REIT may carry an NOL over indefinitely to tax years following the year of loss. REITs are not permitted to carry back an NOL to any year preceding the year of the loss.

Enter the total NOL carryovers from other tax years, but do not enter more than the REIT’s taxable income. The REIT’s taxable income for purposes of the NOL deduction is taxable income (line 21) reduced by the dividends paid deduction (line 22b) and the section 857(b)(2)(E) deduction (line 22c). If this amount is less than zero, an NOL deduction cannot be taken for the tax year. Attach a statement showing the computation of the NOL deduction. Also, complete item 9 on Schedule K.

If capital gain dividends are paid during any tax year, the amount of the net capital gain for such tax year (to the extent of the capital gain dividends) is excluded in determining:

The NOL for the tax year, and
The amount of the NOL of any prior tax year that may be carried over to any succeeding tax year.

Instructions for Form 1120-REIT (2025) 13

Carryover rules. The NOL for the current year is computed using the REIT’s taxable income before it is reduced by the dividends paid deduction. After the REIT applies the NOL to the first tax year to which it may be carried, the taxable income of that year must be modified (as described by section 172(b) and the modified rules for REITs in section 172(d)(6)) to determine how much of the remaining loss may be carried to other years. Although the current-year NOL is computed without regard to the dividends paid deduction, an NOL carryover from a prior year is applied to the current year using taxable income after it is reduced by the dividends paid deduction. The NOL amounts carried forward by the REIT are not reduced by subsequent year dividends paid deductions. See Example 1 in Regulations section 1.172-5(a)(4).

Note. Generally, NOL deductions arising in tax years beginning after 2017 are limited to 80% of taxable income (determined without regard to the NOL). However, NOLs arising in taxable years prior to January 1, 2018, and carried over to the current taxable year are not subject to this limitation.

Special NOL rules apply when:

An ownership change (described in section 382(g)) occurs, the amount of the taxable income of a loss REIT that may be offset by the pre-change NOL carryovers is limited (see section 382 and the related regulations). A loss REIT must file an information statement with its income tax return for each tax year that certain ownership shifts occur (see Temporary Regulations section 1.382-2T(a)(2)(ii) for details). See Regulations section 1.382-6(b) for details on how to make the closing-of-the-books election.
When a REIT acquires control of another REIT (or acquires its assets in a reorganization), the amount of pre-acquisition losses that may offset recognized built-in gains is limited (see section 384).
A REIT may elect under section 965(n) to reduce the amount of the NOL for a tax year determined under section 172 and the amount of taxable income reduced by NOL carryovers to such tax year. The reduction amount is equal to the amount of the section 965(a) inclusion (net of the section 965(c) deduction) plus, in the case of a domestic corporation that claims a credit for deemed paid foreign taxes, the section 78 gross-up with respect to the foreign taxes deemed paid with respect to the section 965(a) inclusion. If, as a result of an election under section 965(n), the amount of the NOL for the tax year is reduced, the reduction amount is included in other income on line 7. If, as a result of an election under section 965(n), the taxable income reduced by NOL carryovers is reduced, the NOL deduction on line 22a is reduced by the reduction amount. See section 965(n) for more information.

Line 24b. First installment of section 1062 applicable net tax laibility. Complete and attach Form 1062, Schedule(s) A (Form 1062), and a copy of the covenant if electing to defer the payment of net income tax attributable to the gain from the sale or exchange of qualified farmland property during this tax year under section 1062. Enter the amount from Form 1062, Part III, line 15. See the Instructions for Form 1062 for more information. Also, see section 1062.

Tax and Payments

Line 25b. Current year’s estimated tax payments. Enter any estimated tax payments the REIT made for the current tax year.

Line 25e. Credit from Form 2439. Enter the credit from Form 2439 for the REIT’s share of the tax paid by a Regulated Investment Company (RIC) or another REIT on undistributed long-term capital gains included in the REIT’s income. Attach Form 2439 to Form 1120-REIT.

To apply using the Online Payment Agreement Application, go to IRS.gov/OPA .

Under an installment agreement, the REIT can pay what it owes in monthly installments. There are certain conditions that

Line 25f. Credit for federal tax on fuels. Enter the credit from Form 4136, Credit for Federal Tax Paid on Fuels, if the REIT qualifies to claim this credit. Attach Form 4136 to Form 1120-REIT.

Line 25g. Elective payment election amount from Form 3800. Enter on line 25g the total net elective payment election amount from Form 3800, General Business Credit, Part III, line 6, column (j). See the Instructions for Form 3800.

Line 25h. Section 1062 applicable net tax liability. If the REIT is electing to defer the payment of net income tax attributable to the gain from the sale or exchange of qualified farmland property, complete and attach Form 1062 and Schedule(s) A (Form 1062). Enter the amount from Form 1062, Part lll, line 14. See the Instructions for Form 1062 for more information. Also, see section 1062.

Line 25z. Other payments and credits. Include on line 25z any other refundable credit the REIT is claiming, including the following. Attach a statement listing the type of credit and the amount of the payment or credit.

Credit under section 1341 for repayments of amounts included in income from earlier years.
Backup withholding. If the cooperative had federal income tax withheld from any payments it received because, for example, it failed to give the payer its correct EIN, include the amount withheld in the total for line 25z.

Line 26. Total payments and credits. Add the amounts on lines 25a through 25z and enter the total on line 26.

Line 27. Estimated tax penalty. A REIT that does not make estimated tax payments when due may be subject to an underpayment penalty for the period of underpayment. Generally, a REIT is subject to the penalty if its tax liability is $500 or more and it did not timely pay the smaller of:

Its total tax for the current tax year, or
Its prior year’s tax. Use Form 2220, Underpayment of Estimated Tax by Corporations, to determine whether the REIT owes a penalty and to figure the amount of the penalty. Generally, the REIT does not have to file this form because the IRS can figure the amount of any penalty and bill the REIT for it. However, even if it does not owe the penalty, the REIT must complete and attach Form 2220 if the annualized income or adjusted seasonal installment method is used, or the REIT is a large corporation computing its first required installment based on the prior year’s tax. See the Instructions for Form 2220 for the definition of a “large corporation.”

If Form 2220 is attached, check the box on this line and enter the amount of any penalty.

Line 28. Tax due. Generally, the REIT must pay any tax due in full no later than the due date for filing its tax return (excluding extensions). Payment of the tax due must be made electronically. See Electronic Deposit Requirement , earlier, for the payment options for the REIT. Also, go to IRS.gov /payments for more detailed information.

If the REIT cannot pay the full amount of tax owed, it can apply for an installment agreement online. The REIT can apply for an installment agreement online if:

It cannot pay the full amount shown on line 28;
The total amount owed is $25,000 or less (including tax, penalties, and interest); and
The REIT can pay the liability in full in 24 months. .

14 Instructions for Form 1120-REIT (2025)

must be met to enter into and maintain an installment agreement, such as paying the liability within 72 months and making all required deposits and timely filing tax returns during the length of the agreement.

If the installment agreement is accepted, the REIT will be charged a fee and it will be subject to penalties and interest on the amount of tax not paid by the due date of the return.

Line 29. Overpayment If there is an overpayment on line 29, enter the amount the REIT wants refunded on line 30b. See the Instructions for line 30b, later. The REIT can also choose to have all or part of the overpayment credited to next year’s estimated tax by completing line 30a. See the Instructions for line 30a, next.

30a. Credited to estimated tax. The REIT can elect to apply all or part of the REIT’s overpayment to next year’s estimated taxes.

Enter the amount of any overpayment from line 29 that should be applied to next year’s estimated tax.

This election to apply some or all of the overpayment amount to the REIT’s 2026 estimated tax cannot be changed at a later date.

Line 30b. Refunded Enter the amount to be refunded to the REIT on line 30b. If the REIT has access to U.S. banking services, it should use direct deposit for any refunds, whenever possible. The benefits of a direct deposit include a faster refund, the added security of a paperless payment, and the savings of tax dollars associated with the reduced processing costs.

Direct deposit of refund. If the REIT wants its refund directly deposited into its checking or savings account at any U.S. bank or other financial institution, complete lines 30c through 30e. See the Instructions for lines 30c, 30d, and 30e, later.

The REIT is not eligible to request a direct deposit if:

The receiving financial institution is a foreign bank or a foreign branch of a U.S. bank, or
The REIT has applied for an EIN but is filing its tax return before receiving one.
The financial institution rejects the direct deposit because of an incorrect routing or account number.
Identifies the property to which the election applies;
Includes the name, address, and EIN of the REIT, the date the property was acquired, and a brief description of how the property was acquired (including the name of the person from whom the property was acquired); and
The REIT fails to indicate the type of account the deposit is to be made to (that is, checking or savings).

Note: The IRS isn’t responsible for a lost refund if the REIT enters the wrong account information. Check with the REIT’s financial institution to get the correct routing and account numbers and to make sure the direct deposit will be accepted.