IRS Instruction 1120-REIT – IRS Forms, Instructions, Pubs 2026 – Real Estate Investment Trusts (REITs) enjoy special tax treatment under IRC Sections 856–860, but they must file Form 1120-REIT annually to report income, claim the dividends-paid deduction, compute tax liability, and maintain REIT status. The official 2025 Instructions for Form 1120-REIT explain every requirement in detail.
This SEO-optimized guide summarizes the latest IRS instructions (tax year 2025, filed in 2026), highlights key filing rules, common pitfalls, and recent updates. It draws directly from trusted IRS sources.
Download the official instructions PDF here:
2025 Instructions for Form 1120-REIT (i1120rei.pdf)
Form 1120-REIT itself (f1120rei.pdf)
What Is Form 1120-REIT?
Use Form 1120-REIT to report:
- Income, gains, losses, and deductions
- The dividends-paid deduction (required to be at least 90% of taxable income)
- Taxes on net income from foreclosure property, prohibited transactions, or qualification failures
- Final income tax liability (generally 21% corporate rate, with many special rules)
Qualified Opportunity Funds (QOFs) that are also REITs file this form and attach Form 8996.
Who Must File Form 1120-REIT?
Any corporation, trust, or association that:
- Elects REIT status (by filing Form 1120-REIT and meeting all tests), or
- Previously elected and the election has not been terminated or revoked
The election is made by computing taxable income as a REIT on this form.
Core REIT Qualification Requirements (Must Be Met Every Year)
- Organized as a corporation, trust, or association
- Transferable shares held by 100+ persons (second year onward)
- Not closely held (5/50 test, second year onward)
- 75% and 95% gross income tests
- 75% asset test
- Distribute at least 90% of taxable income as dividends
- Calendar tax year (unless qualified before Oct. 5, 1976)
Failure can trigger $50,000 penalties per failure or loss of REIT status.
When & How to File (2025 Returns)?
- Due date: 15th day of the 4th month after year-end (April 15, 2026 for calendar-year REITs)
- Fiscal-year filers ending June 30: 15th day of the 3rd month
- Extension: File Form 7004 (automatic 6 months)
- E-filing required if the REIT files 10+ returns per year (new electronic filing support begins mid-February 2026)
- Payment: Electronic via EFTPS; estimated payments if tax ≥ $500
- Where to file: Depends on location and total assets (see instructions or IRS.gov for addresses)
Key Sections of Form 1120-REIT (2025)
Part I – REIT Taxable Income
Calculates ordinary taxable income (excluding foreclosure and prohibited-transaction income).
Major lines:
- Dividends, interest, rents from real property
- Capital gains (Schedule D)
- Deductions: salaries, repairs, interest (subject to §163(j)), depreciation, §179, energy-efficient building deduction (Form 7205)
Part II – Tax on Net Income from Foreclosure Property
100% tax on non-qualifying foreclosure income (election required by due date).
Part III – Tax for Failure to Meet Source-of-Income Requirements
§857(b)(5) tax if 75%/95% tests are failed (attach reasonable-cause statement for relief).
Part IV – Tax on Net Income from Prohibited Transactions
100% tax on gains from prohibited sales (no loss netting).
Schedule A – Deduction for Dividends Paid
Critical for the 90% distribution requirement. December dividends payable in January count in the prior year.
Schedule J – Tax Computation
21% rate on taxable income + special taxes (built-in gains, PHC tax, recaptures, etc.).
Schedule K – Other Information
Questions on controlled groups, foreign ownership (Form 5472 may be required), business interest election, QOF status, etc.
Schedule L & M-1
Balance sheets and book-to-tax reconciliation.
Important 2025 Updates
- New §1062 deferral of gain on qualified farmland sales to qualified farmers (4-year installment election; use upcoming Form 1062).
- Minimum late-filing penalty increased to lesser of tax due or $525 (returns filed >60 days late in 2026).
- Direct-deposit fields expanded on refund lines.
- Electronic filing and payments emphasized more strongly.
Common Penalties REITs Face
- Late filing: 5% per month (max 25%) + $525 minimum
- Late payment: 0.5% per month (max 25%)
- Failure to ascertain ownership: $25,000–$50,000
- Qualification failures: $50,000 per failure
- Prohibited transactions: 100% tax
- Underpayment of estimated tax: Form 2220 penalty
Pro Tips for Smooth Filing
- Attach all required statements for elections, reasonable cause, or test failures.
- Track the 90% distribution requirement carefully—missing it triggers corporate-level tax.
- Use Form 8990 for business interest limitation (unless small-business or real-property exception elected).
- Keep detailed records of tenant services, TRS transactions, and asset tests.
- Consider professional tax software or a REIT-specialized CPA—e-filing is mandatory for many.
Final Thoughts
Form 1120-REIT is the gateway to the tax advantages REITs enjoy, but it demands strict compliance with qualification tests and timely distributions. Always refer to the official 2025 instructions for the most accurate, line-by-line guidance.
Download links again:
→ Instructions PDF
→ Blank Form PDF
Stay compliant, distribute those dividends, and let your REIT thrive in 2026 and beyond!
Sources: Official IRS 2025 Instructions for Form 1120-REIT and related pages (irs.gov).