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Clarity Coming for Definition of Real Property

Marc Ausfresser, J.D., LL.M. 07.02.2014 | eVisor

The IRS has proposed regulations to clarify what is real property for purposes of real estate investment trust (REIT) rules.  Long overdue, it noted that no guidance has been published on this topic since 1975.  The proposals define real property to include land, inherently permanent structures, and structural components.  Safe harbors are provided for determining whether certain assets are or are not real property.  The proposed regulations also identify certain types of intangible assets that are real property or interests in real property for REIT purposes.

Here are some significant aspects of the proposal:

Land.  This would include water and air space directly above the land as well as natural products and deposits such as ores, minerals, and crops that are not cut, extracted, or removed from the land.

Inherently Permanent Structures.  Defined as buildings and other structures that are permanently affixed to the land or to another inherently permanent structure and serve a passive function. Assets that have an active function, i.e. machinery, are not considered permanent structures.

Structural Components.  These are assets that are a part of an inherently permanent structure, serve the structure in a passive function, and do not produce or contribute to the production of income other than consideration for the use or occupancy of space. Examples include plumbing and electricity.  

Intangible Assets.  These assets, which include intangible assets established under generally accepted accounting principles (GAAP), qualify as real property for REIT purposes if they:

  • Get their value from real property or interests in real property;
  • Cannot be separated from the real property or interest in real property; and
  • Do not produce or contribute to the production of income other than considerations for the use or occupancy of the space, e.g. an easement in real property.

The proposals are subject to revision and a public hearing to elicit comments is scheduled for September 18, 2014.

Questions? Contact your Berdon advisor or Marc Ausfresser at 212.331.7639 or



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