The Real Deal New York

Tax plan would kill off main draw of REIT conversions

Camp's proposal eliminates tax exemption for newly created real estate investment trusts
March 04, 2014 08:36AM

A proposal in Congress would strip away the tax exempt status of newly converted real estate investment trusts — thus eliminating one of the chief reasons property companies adopt the REIT structure in the first place.

Dave Camp, chair of the House Ways and Means Committee, introduced the proposal last week. C corporations such as billboard operator CBS Outdoor and Boston-based document manager Iron Mountain, for example, are both planning to switch to REIT status. Such a conversion is often pricey and a slow process. But one of the main benefits of adopting a REIT structure is the tax status of the trusts.

If more than 90 percent of a REIT’s earnings are doled out to shareholders, the earnings are not subject to tax at the company level, Crain’s reported.

Camp’s tax law would prevent similar exemptions from occurring for companies seeking a conversion.

“This provision has the potential to effectively eliminate REIT conversions,” corporate tax consultant Robert Willens told Crain’s.

Camp has proposed repealing other real estate tax deductions as well, as previously reported. [Crain’s] Mark Maurer