On August 31, 2016, the Treasury Department published final regulations (the “Final Regulations”) clarifying the definition of “real property” under the real estate investment trust (“REIT”) rules. The Final Regulations predominantly adopt the proposed regulations (the “Proposed Regulations”) published on May 14, 2014, with only slight modifications despite numerous comments from various industry groups to broaden the definition of “real property” under the Final Regulations.

As did the Proposed Regulations, the Final Regulations flesh out the current definition of “real property” (contained in regulations promulgated in 1962 (the “Existing Regulations”)) to include expressly the types of property for which the IRS had previously provided favorable private letter rulings (“PLRs”). This guidance should be welcome for REITs seeking to invest in these types of property because a taxpayer cannot rely on a PLR received by another taxpayer. Adopting the approach in the Proposed Regulations, the Final Regulations continue to provide a framework for determining whether property that is not expressly addressed in the Final Regulations should be characterized as real property and include detailed examples illustrating the application of the framework.