IRS Form 1120-REIT – Real Estate Investment Trusts (REITs) offer investors a way to gain exposure to real estate without directly owning properties. However, managing taxes for these entities requires precision, and that’s where IRS Form 1120-REIT comes in. This form is essential for REITs to report their financials and ensure compliance with U.S. tax laws. In this SEO-optimized guide, we’ll cover everything you need to know about Form 1120-REIT, including its purpose, filing requirements, key sections, recent updates for tax years 2025 and beyond, and practical tips for smooth submission. Whether you’re a REIT manager, tax professional, or investor, understanding this form can help avoid penalties and optimize tax strategies.
What Is a Real Estate Investment Trust (REIT)?
Before diving into the form, let’s clarify what a REIT is. A REIT is a company that owns, operates, or finances income-producing real estate, such as apartments, shopping centers, offices, or mortgages. To qualify as a REIT under IRS rules, an entity must:
- Be structured as a corporation, trust, or association.
- Have at least 100 shareholders after its first year.
- Distribute at least 90% of its taxable income as dividends to shareholders annually.
- Derive at least 75% of gross income from rents, interest on mortgages, or real estate sales (the 75% income test).
- Derive at least 95% of gross income from the 75% sources plus dividends, interest, and securities gains (the 95% income test).
- Have no more than 50% of shares held by five or fewer individuals (not closely held).
- Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries.
REITs enjoy special tax treatment—they’re not taxed at the corporate level if they meet these requirements, passing income directly to shareholders who pay taxes on dividends. Failure to qualify can lead to standard corporate taxation or penalties.
What Is IRS Form 1120-REIT and Its Purpose?
IRS Form 1120-REIT, officially titled “U.S. Income Tax Return for Real Estate Investment Trusts,” is the tax return used by qualifying REITs to report:
- Income from rents, dividends, interest, and capital gains.
- Deductions, including operating expenses, depreciation, and dividends paid.
- Tax liability, credits, and penalties.
The form ensures REITs demonstrate compliance with qualification rules under Internal Revenue Code Sections 856–859. Even if a REIT has no taxable income, it must file if it elects REIT status or self-certifies as a Qualified Opportunity Fund (QOF) using Form 8996.
For the 2025 tax year (filed in 2026), the form incorporates updates like electronic filing options and new provisions for certain farmland sales.
Who Must File Form 1120-REIT?
Any corporation, trust, or association that elects to be treated as a REIT must file Form 1120-REIT. This includes:
- Equity REITs (owning physical properties).
- Mortgage REITs (focusing on real estate debt).
- Hybrid REITs (a mix of both).
Entities must file even if they have no income or expenses, particularly if they’re QOFs. If REIT status is revoked or terminated (e.g., due to qualification failures), the entity can’t re-elect for four years without IRS consent.
Note: Taxable REIT Subsidiaries (TRSs) file separately using Form 1120, but transactions with the parent REIT must be at arm’s length to avoid 100% penalty taxes under Section 857(b)(7).
How to File IRS Form 1120-REIT: Step-by-Step Guide?
Filing Form 1120-REIT involves preparation, gathering documents, and timely submission. Here’s how:
1. Gather Required Information
- Financial statements (income, expenses, balance sheets).
- Shareholder distribution records.
- Supporting forms: Schedule D (capital gains), Form 4562 (depreciation), Form 8990 (business interest expense limitation), Form 8996 (QOF certification), and others as needed.
- EIN (Employer Identification Number) and REIT election details.
2. Choose Filing Method
- Electronic Filing (e-File): Mandatory for REITs filing 10 or more returns annually. Available starting mid-February 2026 for Form 1120-REIT. Use IRS-approved software or a tax professional. Benefits include faster processing and fewer errors.
- Paper Filing: Allowed for smaller filers, but e-filing is encouraged.
3. Deadlines and Extensions
- Due Date: 15th day of the 4th month after the tax year ends (April 15, 2026, for calendar-year REITs). For fiscal years ending June 30, it’s the 15th day of the 3rd month.
- Automatic Extension: File Form 7004 for a 6-month extension (to October 15, 2026, for calendar years). Note: This extends filing, not payment—pay estimated taxes to avoid penalties.
- Estimated Taxes: If liability is $500 or more, pay quarterly via Electronic Federal Tax Payment System (EFTPS). Penalties apply for underpayment (use Form 2220).
4. Where to File
- Depends on principal business location and total assets:
- Assets under $10 million (and no Schedule M-3): Kansas City, MO, for most states; Ogden, UT, for others or foreign entities.
- Assets $10 million or more (or with Schedule M-3): Ogden, UT.
- For paper filings, check the latest IRS addresses.
5. Payments and Refunds
- Pay via EFTPS if required.
- For overpayments, elect a credit to 2026 estimates or request a refund (direct deposit available).
6. Submit and Retain Records
- Assemble attachments in sequence (e.g., Schedule N, Form 8949).
- Keep records for at least 3 years.
Penalties for late filing: 5% per month (up to 25%), minimum $525 if over 60 days late for 2026 returns.
Key Sections of Form 1120-REIT
The form is structured to calculate taxable income while accounting for REIT-specific rules. Here’s a breakdown based on the 2025 version:
| Section | Description | Key Information Required |
|---|---|---|
| Header | Basic info like name, EIN, total assets, REIT type (equity/mortgage). | Date established, checkboxes for changes/amendments. |
| Part I: REIT Taxable Income | Reports income (dividends, rents, capital gains) and deductions (salaries, depreciation, interest). Subtract NOLs and dividends paid. | Exclude foreclosure/prohibited transaction income. |
| Part II: Foreclosure Property | Tax on net income from foreclosed properties (21% rate). | Election statement if applicable; up to 3-year treatment. |
| Part III: Source-of-Income Failures | Penalty tax for failing 75%/95% income tests. | Adjustments for hedging/foreign income; relief for reasonable cause. |
| Part IV: Prohibited Transactions | 100% tax on net income from non-qualifying sales. | Exceptions for timber REITs. |
| Schedule A: Dividends Paid Deduction | Calculates deduction for distributions (must be ≥90%). | Includes consent/deficiency dividends. |
| Schedule J: Tax Computation | Total tax, including built-in gains, credits (e.g., foreign tax via Form 1118), and other taxes (e.g., recapture). | 21% rate on taxable income; new Section 1062 for farmland sales. |
| Schedule K: Other Information | Accounting method, ownership details, elections (e.g., Section 163(j) interest). | Foreign ownership may require Form 5472. |
| Schedule L: Balance Sheets | Assets/liabilities at year start/end. | Per books. |
| Schedule M-1/M-2 | Reconciles book vs. tax income; analyzes retained earnings. | Adjustments for nondeductible items. |
| Page 2: Tax and Payments | Final tax due, credits, overpayments. | Includes first installment of Section 1062 liability. |
For detailed line-by-line guidance, refer to the official instructions.
Recent Updates for Tax Years 2025 and 2026
As of February 2026:
- Electronic Filing Launch: Mid-February 2026 for Form 1120-REIT.
- Penalty Increases: Late filing minimum rises to $525.
- Section 1062: New 4-year installment for net tax on qualified farmland sales after July 4, 2025. Report on line 25h.
- Year-End Planning: REITs should focus on distributions and compliance amid potential guidance from IRS Priority Plan.
Stay updated via IRS publications, as forms are revised annually.
Common Mistakes and Tips for REIT Tax Filing
- Avoiding Qualification Failures: Regularly test income/assets; seek relief for minor issues via reasonable cause statements.
- Distribution Errors: Ensure 90% payout; use Section 858 for post-year dividends.
- TRS Pitfalls: Arm’s-length pricing to dodge 100% taxes.
- Tips: Use software for e-filing, consult tax advisors for complex items like GILTI (Form 8992) or interest limitations (Form 8990). Track NOLs (80% limit post-2017).
For sample visuals, download the form PDF from the IRS site.
Conclusion
Mastering IRS Form 1120-REIT is crucial for REITs to maintain tax advantages and avoid costly penalties. By following this guide, you can ensure accurate filing in 2026. For personalized advice, consult a tax professional or visit IRS.gov for the latest resources. If you’re preparing for tax season, start early to leverage extensions and optimize deductions.