Contents

  1. Captive Real Estate Investment Trust
  2. Understanding Captive Real Estate Investment Trusts
  3. Real Estate Investment Trusts
  4. Subsidiary Accounting

Captive Real Estate Investment Trust

A captive Real Estate Investment is solely a real estate investment Trust (REIT) with dominant possession by one company.

A company that owns land related to its business might realize it advantageous to bundle the properties into a fund for the special tax breaks. This tax mitigation strategy may be employed by retailers and banks with several stores or branches.

  • A captive fund is any fund with a larger than five hundredth possession stake by one company.
  • Captive REITs are typically subsidiaries of different companies.
  • As REITs, captive funds get pleasure from all of the tax blessings of a regular REIT.
  • Comprehensively, captive fund accounting may be complicated for a parent company and therefore the captive fund subsidiary.
  • Accounting and tax professionals ought to guarantee they’re compliant with all federal and state laws encompassing captive REITs.

Understanding Captive Real Estate Investment Trusts

A captive Real Estate Investment may be created to require advantage of the tax breaks offered by a Real Estate Investment Trust (REIT). corporations might prefer to develop or take dominant possession in an exceeding fund for captive standing. dominant or captive standing is outlined as over 500 of the vote possessions stakes of a fund.

Companies that build a captive fund to manage their land properties can generally characterize them as either rental or mortgage REITs. Mortgage REITs (mREITs) provide mortgage capital for the promise of reciprocal financial gain, which is usually the premise for a REIT’s revenue. corporations may additionally

use captive land investment trusts by transferring land into a fund, and so transaction the properties from those REITs.

Real Estate Investment Trusts

A captive fund could be a fund with dominant possession from one company. on the far side, captive REITs are merely REITs. An entity may be classified as a fund if it meets the bound needs of the inner Revenue Service and Title twenty-six of the inner Revenue Code. REITs may be trusts, associations, or companies but regardless they have to all elect to be taxed as corporations

The Internal Revenue Code permits all REITs to distribute all of their financial gains to their shareholders. This makes REITs almost like partnerships underneath the tax code since partnerships usually don’t have any financial gain and distribute all of their financial gains through a K-1.4

REITs should meet many needs to qualify for the financial gain distribution tax deductions that characterize REITs normally. Specifically, an organization should meet the subsequent needs to qualify as a REIT

  • Taxable as a company
  • Pay a minimum of ninetieth of assessable financial gain within the kind of shareowner dividends every year
  • Derive a minimum of seventy-fifth of gross financial gain from rents, interest on mortgages that finance belongings, or land sales
  • Invest a minimum of seventy-fifth of total assets in land, cash, or U.S. Treasuries
  • Have a minimum of a hundred shareholders (controlling corporations might name executives as shareholders to satisfy this requirement)

If an entity meets the fund needs, it should pay a minimum of ninetieth of its financial gain to shareholders and is so allowed to require the financial gain distribution as a deduction. Any remaining balance when the specified distribution is taxed at the mandatory company charge per unit.

Subsidiary Accounting

Captive REITs are thought-about subsidiaries and thus their possession should be accounted for in a way on the parent company’s financials. Generally, there are 3 ways to account for subsidiaries and subsidiary possession on a parent company’s financial statements. corporations will report consolidated monetary statements, or they will account for the possession through either the equity methodology or the price methodology.

Under Generally Accepted Accounting Principles (GAAP), corporations have the choice to make consolidated monetary statements that integrate all aspects of a subsidiary’s financials if the parent company owns larger than five-hundredths of the possession rights. Typically, it’s not helpful or applicable for a parent company to incorporate a captive fund in consolidated financial plan coverage. that is attributable to the tax advantages the captive fund gets on its own, that is typically the explanation for making it. Therefore, captive fund possession is often accounted for on a parent company’s financials through either the equity methodology or the price methodology.

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