Martina Linders, partner at RSM U.S. LLP, participated in a video interview in conjunction with Nareit’s REITwise: 2023 Law, Accounting & Finance Conference held March 21-23 in Phoenix, Arizona.
Linders said that in her experience, REITs are typically very diligent with the required qualifications to maintain their REIT status; but that since 2018, net operating losses incurred are limited to 80% of taxable income.
“So you’re still going to have a portion of that REIT taxable income that you have to distribute in order to maintain your REIT status,” she said.
Linders said that REITs should also be aware of the differences between federal and state requirements, and also identify any hedge that they enter into, like an interest rate cap or swap for mortgage interest debt.
Turning to solutions that Linders might employ if a REIT encountered requirement failures, she said she might approach the IRS for a private letter ruling or work with outside counsel for an opinion on a discreet issue.
“Two things you need to know: [In the private REIT space], can you make sure that you’re going to meet the ownership tests?” Linders added. “And…how long do you actually expect to hold the property? Because if you’re not expected to be a long-term holder, you shouldn’t be in a REIT space.”