REIT Tax News - March 2025

On February 6, 2025, President Donald Trump proposed ending favorable taxation for carried interest income. While it is unclear what, if any, reform will ultimately be proposed by Republicans in Congress, prior and current Democrat proposals have included converting all carried interest income to ordinary income. For more on this proposal, see our client alert.

On February 10, 2025, President Trump imposed a 25-percent tariff on all steel and aluminum imports in an effort to boost domestic production. This tariff, which went into effect on March 12, 2025, is expected to lead to increased construction costs and could negatively impact REITs. See our client alert for ways to mitigate the effects of these tariffs.

Artificial intelligence (AI) played a pivotal role in preventing financial loss at the US Department of Treasury. The Treasury recovered more than $4 billion from fraud and improper payments from October 2023 to September 2024 using advanced machine learning (ML) techniques. These ML techniques include (1) increased risk-based screening, culminating in $500 million in prevention; (2) identifying and prioritizing high-risk transactions, resulting in $2.5 billion in prevention; (3) expedited identification of Treasury check fraud, resulting in $1 billion in recovery; and (4) implementing efficiencies in payment processing schedule, resulting in $180 million in prevention. It is unclear whether ML has been used to review REIT tax returns and operating partnership returns for umbrella partnership real estate investment trusts (UPREITs). For more information on the use of AI at the Treasury, see this press release.

In PLRs 202510011 and 202510012, the IRS ruled that payments made by airlines for the use of airport terminal space are qualifying REIT income. In each instance, the REIT provided only services that are customarily rendered in connection with the rental of space in airport terminals and did not provide any services that are tailored to any particular airline. For more information, please see PLR 202510011 and PLR 202510012.

Key tax reforms are under negotiation in the US Senate and US House of Representatives, where legislators are at an impasse over whether to include them in the current fiscal year or defer them to the next. If tax reforms are not passed this year, many provisions of the Tax Cuts and Jobs Act, including the 199A business income deduction relied on by REITs, will phase out at the end of 2025. Commentators generally expect the 199A business income deduction to be ultimately extended before year end. We will continue to closely monitor updates to tax reform.