Welcome to the June 2025 issue of REIT Tax News. Below, we summarize five key developments impacting REITs this past quarter.
House Tax Bill proposes lower effective tax rate on ordinary REIT dividends
On May 22, 2025, the House of Representatives passed a tax bill (House Tax Bill) that proposes to make permanent – and increase – the section 199A deduction for ordinary REIT dividends to 23 percent. This change would reduce the effective tax rate on REIT ordinary dividends for individuals in the 37-percent tax bracket from 29.6 percent to 28.49 percent. For more information on the section 199A deduction, see our client alert.
House Tax Bill would increase the taxable REIT subsidiary limit
The bill also proposes raising the limit on assets held through taxable REIT subsidiary (TRS) corporations from 20 percent to 25 percent. However, this is not a new proposal, as the law has often fluctuated between 20 percent and 25 percent. Under current economic conditions, increasing the limit to 25 percent could ease compliance burdens for REITs and offer greater flexibility – particularly for those using the TRS regime, or for those involved in international and data center projects. For more information on this change, see our client alert.
No changes to carried interest reform in the House Tax Bill
Despite ongoing discussions regarding carried interest reform, the House Tax Bill does not address changes to carried interest reform. This may continue to be a point of discussion as the bill moves to the Senate. Learn more here.
New section 899 would limit section 892 and treaty benefits for certain foreign investors
The House Tax Bill proposes the enactment of new section 899 under the Internal Revenue Code, which would impose a retaliatory tax on certain countries that have adopted digital services taxes (DSTs), undertaxed profits rules (UTPR), diverted profits taxes, and other foreign taxes deemed to be disproportionately borne by US persons.
Key provisions in the proposed section 899 include (a) denial of section 892 benefits to governments of discriminatory foreign countries, and (b) increasing the rate of withholding (by up to 20 percentage points) on other foreign persons who are tax residents in, or controlled by, foreign persons tax residents in such countries.
The Joint Committee on Taxation (JCT) report clarifies that the retaliatory tax could modify certain preferential rates under income tax treaties. Section 899 is anticipated to impact foreign investors in REITs that have traditionally relied on treaty benefits. See our client alert for more information.
IRS issues new cold storage REIT private letter ruling
In PLR 202520010, the Internal Revenue Service (IRS) ruled that income received from tenants for providing tempering, temperature reduction, and handling services by a cold storage REIT qualified as rent from real property under section 856(c)(2) and (3). These services were deemed customary and provided in connection with the rental of real property. For more information, see PLR 202520010.
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