IRS Form 8875 – Taxable REIT Subsidiary Election – In the world of real estate investment, Real Estate Investment Trusts (REITs) offer unique tax advantages, but they come with strict operational rules. One key tool for flexibility is the Taxable REIT Subsidiary (TRS) election, made using IRS Form 8875. This form allows a REIT and a corporation it owns to jointly elect TRS status, enabling the subsidiary to handle activities that the REIT itself cannot perform without jeopardizing its tax benefits. Whether you’re a REIT manager, tax professional, or investor, understanding Form 8875 is essential for compliance and strategic planning. This guide covers everything you need to know, based on the latest IRS guidelines as of 2026.
What Is a Taxable REIT Subsidiary (TRS)?
A Taxable REIT Subsidiary, or TRS, is a corporation owned directly or indirectly by a REIT that has jointly elected with the REIT to be treated as a TRS for tax purposes. Introduced in 1999 through the REIT Modernization Act, TRSs provide REITs with greater operational flexibility.
Unlike the REIT, which enjoys pass-through taxation and must distribute nearly all earnings to avoid entity-level taxes, a TRS is subject to regular corporate income tax. This structure allows the TRS to engage in “non-traditional” activities, such as providing impermissible tenant services, operating hotels or healthcare facilities, or holding dealer property that could otherwise generate prohibited income for the REIT. For example, in hospitality or senior housing REITs, a TRS might lease properties from the REIT and manage operations through independent contractors.
Key benefits of a TRS include:
- Allowing REITs to offer additional services without disqualifying rental income.
- Enabling the REIT to compete more effectively with other real estate owners.
- Providing a vehicle for activities like mortgage servicing or sales that could trigger a 100% prohibited transactions tax if done by the REIT itself.
However, transactions between the REIT and TRS must be at arm’s length, and the TRS’s value cannot exceed 20% of the REIT’s total assets (down from 25% in prior years, but confirm current limits with IRS testing).
Purpose of IRS Form 8875
IRS Form 8875, titled “Taxable REIT Subsidiary Election,” is used by an eligible corporation and a REIT to jointly elect TRS treatment under Internal Revenue Code Section 856(l). The election does not require IRS approval—it’s effective upon proper filing. This form ensures the corporation is treated as a TRS, allowing the REIT to own stock in it while maintaining REIT qualification.
The primary goal is to let REITs expand their operations through subsidiaries without violating income or asset tests. For instance, if a REIT wants to provide non-customary services to tenants, a TRS can handle them, preserving the REIT’s “good income” status.
You can download the current Form 8875 PDF directly from the IRS at https://www.irs.gov/pub/irs-pdf/f8875.pdf.
Who Needs to File Form 8875?
Form 8875 must be filed by:
- A corporation (other than another REIT or an ineligible entity) in which the REIT owns stock directly or indirectly.
- The electing REIT itself.
The REIT must own at least one share of the corporation’s stock, but full ownership isn’t required. If multiple REITs own stock in the same corporation, each must file a separate Form 8875.
Eligibility Requirements
- The corporation must not be a REIT.
- It cannot directly or indirectly operate or manage a lodging or healthcare facility, or provide brand rights for such facilities, unless it meets specific exceptions (e.g., providing rights to an eligible independent contractor and owning or leasing the facility).
Ineligible corporations include those that would violate these rules, potentially disqualifying the election.
How to Complete IRS Form 8875?
Form 8875 is divided into three parts:
Part I: Taxable REIT Subsidiary Making the Election
- Enter the subsidiary’s name, address, EIN, incorporation date, and state/country. If no EIN, apply online via IRS.gov or use Form SS-4.
Part II: Electing REIT That Owns Stock in the Taxable REIT Subsidiary
- Provide the REIT’s name, address, EIN, incorporation date, state, contact officer’s name, and phone number. If addresses match, note “Same as corporation.”
Part III: Information on the Election
- Line 11: Specify the effective date (see below).
- Lines 12-15: Detail prior tax returns, consolidated filings, and common parent info if applicable.
- Line 16: If the TRS owns 35% or more of another corporation’s voting power or value (non-REIT), attach a statement with that corporation’s name and EIN. This automatically treats the lower-tier entity as a TRS.
Both the subsidiary and REIT officers must sign under penalties of perjury.
If the subsidiary is an LLC electing corporate status, file Form 8832 first, effective the same date as the TRS election.
When and Where to File Form 8875?
The election can be made at any time during the tax year. Do not attach it to tax returns—mail separately to:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201
For changes in address or responsible party, use Form 8822-B.
Effective Date Rules
- The date on Line 11 cannot be more than 2 months and 15 days before filing or 12 months after.
- If invalid, it’s adjusted to the nearest allowable date.
- If unspecified, it’s effective on the filing date.
Extensions may be granted under certain circumstances, as seen in IRS private letter rulings.
Revoking the TRS Election
The election is irrevocable unless both parties consent to revocation. To revoke:
- File a new Form 8875 marked “REVOCATION” at the top.
- Complete Parts I and II, sign, and file—it takes effect on the filing date.
Automatic termination occurs if the TRS’s EIN changes (e.g., due to merger); a new election is needed.
Additional Considerations for Form 8875
- Lower-Tier Subsidiaries: If the TRS later acquires 35% of another corporation, file an amended Form 8875 marked “Automatic Taxable REIT Subsidiary” within 30 days of the quarter-end.
- Tax Implications: TRSs are taxable, but dividends to the REIT count as good income. Leverage and payments are restricted to prevent income stripping.
- E-Filing Requests: As of 2024, groups like Nareit have pushed for electronic filing of Form 8875, but it’s still paper-based in 2026.
- Compliance: Consult a tax advisor for REIT testing and to ensure arm’s-length dealings.
Conclusion
IRS Form 8875 is a straightforward yet powerful tool for REITs seeking to leverage Taxable REIT Subsidiaries for expanded operations while maintaining tax advantages. By following the guidelines outlined here, you can ensure a smooth election process. Always refer to the official IRS resources for the most current information, and consider professional advice for complex scenarios. For the latest form, visit the IRS website or download it here.