Congress quietly raises REIT tax threshold, narrowing federal revenue
H.R. 2198 — To amend the Internal Revenue Code of 1986 to restore the taxable REIT subsidiary asset test. · Filed by Mike Kelly (R-PA) · 20 cosponsors · Introduced Mar 18, 2025 · Referred to committee
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What it does
This bill increases the asset threshold for taxable REIT subsidiaries from 20% to 25%, allowing Real Estate Investment Trusts to hold a larger portion of their assets in taxable subsidiaries (corporate entities that pay corporate income tax) before triggering restrictions. The change takes effect for tax years beginning after December 31, 2025, and primarily benefits REIT operators and their investors by providing more operational flexibility.
Why we flagged it
The bill is a narrow, technical amendment to the Internal Revenue Code that increases the asset threshold for taxable REIT subsidiaries. It is straightforward tax legislation with no hidden mechanisms—the title accurately describes the function.
What the text implies
- REITs may increase use of taxable subsidiaries for operational flexibility, potentially shifting some corporate income into entities subject to corporate tax while allowing the REIT itself to maintain pass-through status.
- The change may enable REITs to structure acquisitions and financing arrangements differently, potentially affecting the tax treatment of real estate transactions across the market.
The full analysis lists 3 implications of this text.
Who stands to gain
Real Estate Investment Trusts (REITs); REIT operators and sponsors; Institutional investors in REIT shares (pension funds, mutual funds)