Part II—Tax on Net — Instruction 1120-REIT

Complete Part II only if the gross income, gains, losses, and deductions from foreclosure property (defined in section 856(e)) result in net income. If an overall net loss results, report the gross income, gains, losses, and deductions from foreclosure property on the appropriate lines of Part I.

Property may be treated as foreclosure property only if it meets the requirements of section 856(e) and the REIT elects to treat the property as foreclosure property in the year it was acquired. The property continues to be foreclosure property until the close of the 3rd tax year following the tax year in which the REIT acquired it. For more information, see section 856(e).

However, if the foreclosure property is qualified health care property, it will cease to be foreclosure property as of the close of the 2nd year following the tax year the REIT acquired it (although the REIT may request one or more extensions to this 2-year grace period not to extend beyond the 6th year). See section 856(e)(6) for details.

This election must be made by the due date for filing Form 1120-REIT (including extensions). To make the election, attach a statement that:

Indicates that the election under section 856(e) is being made;

Line 30c. Routing number. The routing number must be nine digits. The first two digits must be between 01 and 12 or 21 through 32. Ask the REIT’s financial institution for the correct routing number to enter on line 30c if:

The routing number on a deposit slip is different from the routing number on the REIT’s checks.
The deposit is to a savings account that does not allow the REIT to write checks, or
The REIT’s checks state that they are payable through a financial institution different from the one at which the REIT has its checking account.

Line 30d. Type of account. Check the appropriate box for the type of account. Don’t check more than one box. The REIT must check the correct box to ensure the deposit is accepted.

Line 30e. Account number. The account number can be up to 17 characters (both numbers and letters). Include hyphens but omit spaces and special symbols. Enter the numbers from left to right and leave any unused boxes blank. Don’t include the check number.

If the direct deposit to the REIT’s account is different from the amount it expected, the REIT will receive an explanation in the mail about 2 weeks after the refund is deposited

Conditions resulting in a refund by check. If the IRS is unable to process the request for a direct deposit, a refund by check will generated instead. Reasons for not processing a request include.

The name of the REIT on the tax return does not match the name on the account.
Gives a description of the lease or debt with respect to which default occurred or was imminent.

The REIT can revoke the election by filing a revocation on or before the due date (including extensions) for filing Form 1120-REIT. See section 856(e) for more details.

Line 2. Gross income from foreclosure property. Do not include income that qualifies under the REIT’s 75% gross income test under section 856(c)(3)(A), (B), (C), (D), (E), or (G). These amounts must be reported in Part I.

Line 4. Deductions. Deduct only those expenses that have a proximate and primary relationship to earning the income shown on line 3. This includes:

Depreciation on foreclosure property;
Interest paid or accrued on debt of the REIT that is attributable to the carrying of the property;
Real estate taxes; and
Fees charged by an independent contractor to manage such property.

Do not deduct general overhead and administrative expenses in Part II.

Instructions for Form 1120-REIT (2025) 15