Question

In: Accounting

1. Indicate below whether each activity would be nontaxable or taxable (subject to UBTI) for a...

1. Indicate below whether each activity would be nontaxable or taxable (subject to UBTI) for a tax exempt investor: "U" = subject to UBTI "N" = nontaxable

_____ Single family home real estate development and sale

_____ Operating income from a nursing home

_____ Condominium sales in the ordinary course of a business

_____ Capital gain distributions from a REIT

_____ Interest income on a loan from a wholly owned US corporation

_____ Dividends from a corporation where the investment was made with borrowed money

_____ Daily parking fees for customers who may or may not be tenants

_____ Ordinary dividends from a REIT

2. List 5 requirements to qualify as a REIT:

1 ________________________________

2 ________________________________

3 _________________________________

4 _________________________________

5 _________________________________

Solutions

Expert Solution

1. Single family home real estate development and sale - UBTI

2. Operating income from a nursing home - "Non Taxable"

3. Condominium sales in the ordinary course of a business -"Non taxable"

4. Capital gain distributions from a REIT - "Taxable in the hands of receiver"

5. Interest income on a loan from a wholly owned US corporation - "Non Taxable"

6. Dividends from a corporation where the investment was made with borrowed money -"Nontaxable" but there will be no tax exemption for the interest paid on the loan

7. Daily parking fees for customers who may or may not be tenants - "UBTI"

8. Ordinary dividends from a REIT -"Non Taxable"

B. 5 requirements to qualify as a REIT:

i.The company must Invest at least 75% of its total assets in real estate assets and cash

ii. The company must derive at least 75% of its gross income from real estate related sources, including rents from real property and interest on mortgages financing real property;

iii. The company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends.

iv. The company must have centralized management.(i.e controlled by Board of Directors/trustees)

v. The shares must be transferable.

vi. The company must not be closely held( i.e it should have a minimum of 100 shareholders after its first year as a REIT, not a compulsion for its first year)

ekkarill92 answered 1 year ago

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