To amend the Internal Revenue Code of 1986 to restore the taxable REIT subsidiary asset test.

Bill Number

H.R. 2198

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-03-18: Referred to the House Committee on Ways and Means.

Last Updated

2025-10-04T08:05:33Z

AI-Generated Summary

Purpose

This bill aims to adjust tax rules for Real Estate Investment Trusts (REITs), which are companies that own and manage income-producing real estate, allowing investors to earn dividends from property investments while receiving certain tax advantages. Specifically, it seeks to restore a previous limit on the portion of a REIT's assets that can be held in a taxable subsidiary, making it easier for REITs to structure their operations.

Key Provisions

• Amends Section 856(c)(4)(B)(ii) of the Internal Revenue Code of 1986.
• Changes the asset test threshold for taxable REIT subsidiaries (TRSs) from 20% to 25% of the REIT's total assets. A TRS is a special type of subsidiary that can conduct non-real estate activities (like hotels or services) and is subject to regular corporate taxes, unlike the REIT parent which passes income directly to shareholders.
• The change applies to taxable years beginning after December 31, 2025.

Significant Changes to Existing Law

• Prior to 2017 tax reforms, the TRS asset limit was 25%; it was reduced to 20% under the Tax Cuts and Jobs Act of 2017. This bill reverses that reduction, restoring the original 25% cap.
• No other alterations to REIT qualification rules, such as income tests or distribution requirements, are made.

Potential Impacts

• On government agencies: The Internal Revenue Service (IRS) may see a minor increase in administrative workload for auditing REIT compliance but could collect slightly less revenue from TRSs due to expanded flexibility for REITs.
• On citizens: Individual and institutional investors in REITs (e.g., through stocks or retirement accounts) may benefit from potentially higher REIT dividends and growth, as the change allows REITs to hold more assets in taxable subsidiaries without losing tax-advantaged status.
• On international relations: Minimal direct impact, though multinational REITs could see indirect effects on cross-border investments if they adjust subsidiary structures.
• Overall, the change promotes flexibility in real estate financing without broadly altering tax revenues.

Main Stakeholders Affected

• REIT companies and their executives: Gain more operational freedom to diversify into related businesses like property management or development.
• Investors in REITs: Primarily retail investors, pension funds, and mutual funds, who could see improved returns from enhanced REIT efficiency.
• Taxable REIT subsidiaries: Businesses operating within TRSs benefit from the higher asset allowance, potentially expanding activities.
• Taxpayers and the U.S. Treasury: Indirectly affected through possible shifts in tax liabilities, though the revenue impact is expected to be small.

Notable Legal, Constitutional, or Political Implications

• Legal: Strengthens REITs' ability to comply with tax code requirements without risking disqualification, potentially reducing litigation over asset classifications. No challenges to constitutional principles like equal protection or due process are evident.
• Constitutional: Neutral; the bill involves routine tax code amendments under Congress's taxing power (Article I, Section 8).
• Political: Bipartisan support (introduced by members from both parties) suggests broad agreement on easing business regulations for the real estate sector. It could influence future tax policy debates on corporate incentives, but lacks broader ideological controversy.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Kelly, Mike [R-PA-16]

Cosponsors (20)

Rep. Schneider, Bradley Scott [D-IL-10], Rep. Feenstra, Randy [R-IA-4], Rep. Panetta, Jimmy [D-CA-19], Rep. LaHood, Darin [R-IL-16], Rep. Moore, Gwen [D-WI-4], Rep. Moore, Blake D. [R-UT-1], Rep. Davis, Danny K. [D-IL-7], Rep. Tenney, Claudia [R-NY-24], Rep. DelBene, Suzan K. [D-WA-1], Rep. Fitzpatrick, Brian K. [R-PA-1], Rep. Suozzi, Thomas R. [D-NY-3], Rep. Buchanan, Vern [R-FL-16], Rep. Murphy, Gregory F. [R-NC-3], Rep. Smith, Adrian [R-NE-3], Rep. Estes, Ron [R-KS-4], Rep. Hern, Kevin [R-OK-1], Rep. Moran, Nathaniel [R-TX-1], Rep. Kustoff, David [R-TN-8], Rep. Carey, Mike [R-OH-15], Rep. Malliotakis, Nicole [R-NY-11]

Recent Actions

• 2025-03-18: Referred to the House Committee on Ways and Means.
• 2025-03-18: Introduced in House
• 2025-03-18: Introduced in House

Bill Versions

• To amend the Internal Revenue Code of 1986 to restore the taxable REIT subsidiary asset test. — issued 2025-03-18 — PDF (2 pages)