The Internal Revenue Service ("IRS") recently finalized regulations (the "Regulations") clarifying the definition of "real property" for purposes of the REIT rules. The Regulations generally are consistent with the proposed regulations that were issued in May 2014. The Regulations will be effective for taxable years beginning after August 31, 2016. Taxpayers may rely on the Regulations for quarters that end before the effective date. Click here to read the full text of the Regulations.

The Regulations clarify that the following items, which are not currently addressed by published IRS guidance, constitute "real property" under REIT rules:

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  •  If permanently affixed
  • If part of an inherently permanent structure and held together with a real property interest

The Regulations also provide factors to be utilized in making a "facts and circumstances determination" as to whether items not specifically listed above or otherwise in the Regulations qualify as real property.

The IRS provided several examples indicating certain types of property that do or do not qualify as "real property." Based on the facts in the examples, the Regulations made the following classifications:

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Effective Dates

The Regulations will be effective for taxable years beginning after August 31, 2016. Taxpayers may rely on the Regulations for quarters that end before the effective date.