Extenders Bill Puts an End to Tax-Free REIT Spinoffs but Includes a Number of Favorable Changes to the Taxation of REITs

Morrison & Foerster LLP
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On December 18, 2015, the President signed the Omnibus Appropriations Act (the “Act”) into law. Notably, the Act contains a number of substantive changes to the tax laws applicable to “real estate investment trusts” (“REITs”). Although several changes will adversely affect certain REITs, on balance REITs and their investors fared favorably under the Act.

Front and center, the Act generally prohibits REIT tax-free spinoffs by non-REIT entities and bans corporations from electing REIT status within 10 years of being spun off. Shareholders of corporations with significant real estate hoping to minimize the tax burden on the corporation’s overall business by spinning-off the real estate on a tax-free basis will be frustrated by the new restrictions on tax-free REIT spin-offs.

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