Summary of S. 1334 (Introducing Bill)

Overview

S.1334 is an introduced Senate bill that would amend the Internal Revenue Code to increase the percentage limit on the portion of a Real Estate Investment Trust (REIT) that may be held in a taxable REIT subsidiary (TRS). The change aims to provide REITs with greater flexibility to operate through TRSs for non-REIT activities permissible under TRS rules.

• Bill number: S. 1334
• Title: A bill to amend the Internal Revenue Code of 1986 to increase the percentage limitation on assets of real estate investment trusts which may be held in taxable REIT subsidiaries.
• Status: Introduced in Senate
• Introduced date: April 8, 2025

What the bill would do

• Change the existing limit on assets that a REIT can own indirectly through a TRS.
• Specifically, the bill would:
  • Amend 26 U.S.C. § 856(c)(4)(B)(ii) by striking the current 20 percent limitation and inserting a 25 percent limitation.
  • This increases the allowable percentage of a REIT’s assets that may be held in taxable REIT subsidiaries from 20% to 25%.

Key provisions and changes

• Incremental increase: 20% → 25% of a REIT’s assets may be held in TRSs.
• Effective date: The amendment would apply to taxable years beginning after December 31, 2025 (i.e., starting in 2026).

Who/what is affected

• Affected entity: Real Estate Investment Trusts (REITs) that use or could use Taxable REIT Subsidiaries (TRSs) to hold assets or conduct activities.
• Affected mechanism: The permissible share of a REIT’s assets that may be held in TRSs increases, potentially expanding the scope for TRS-based operations and planning.

Legislative history and status

• Introduced in the Senate on April 8, 2025.
• Legislative actions (as of introduction):
  • Read twice and referred to the Senate Committee on Finance.
  • Introduced in the Senate.
• Sponsors:
  • Primary sponsor: Thomas (Thom) Tillis
  • Cosponsor: Raphael Warnock

Potential impact and considerations

• Flexibility: REITs may gain additional flexibility to structure non-REIT activities through TRSs, potentially enabling a broader range of services or investments within TRS arrangements.
• Compliance: REITs would still need to remain compliant with TRS rules and REIT requirements, including income and asset tests applicable to TRS activities.
• Economic effects: The change could influence REIT tax planning, financing strategies, and asset allocation, though the overall revenue and broader macroeconomic impact would depend on how REITs utilize the increased threshold.

Next steps

• If enacted, the bill would become law for taxable years beginning after December 31, 2025.
• Further committee review and potential amendments would be required before passage in both chambers and signing into law.