Title 26 — Internal Revenue CodeRelease 119-73not60
§4981 Excise Tax on Undistributed Income of Real Estate Investment Trusts
Title 26 › Subtitle Subtitle D— Miscellaneous Excise Taxes › Chapter 44— QUALIFIED INVESTMENT ENTITIES › § 4981
Summary
A 4% tax must be paid by any real estate investment trust (REIT) each year on the amount by which what it was required to distribute to shareholders exceeds what it actually distributed. Required distribution: add 85% of the REIT’s ordinary income and 95% of its capital gain net income for the calendar year, and add any prior-year shortfall. The prior-year shortfall uses a “grossed up” version of the required distribution that treats the 85% and 95% as 100%. Distributed amount: the dividends the REIT deducted as paid during the calendar year (with certain tax adjustments) plus any amounts already taxed as distributed for taxable years ending in that calendar year, and it is adjusted for prior-year differences. The tax is due by March 15 following the calendar year. Ordinary income: the REIT’s taxable income for the year excluding capital gains and treated on a calendar-year basis. Capital gain net income: the REIT’s capital gain amount for the year (treated as a calendar year) reduced by any net ordinary loss. Deficiency dividends are counted when paid, and the related income is treated as arising when the dividend is paid.
Full Legal Text
Title 26, §4981
Internal Revenue Code — Source: USLM XML via OLRC
(a)There is hereby imposed a tax on every real estate investment trust for each calendar year equal to 4 percent of the excess (if any) of—
(1)the required distribution for such calendar year, over
(2)the distributed amount for such calendar year.
(b)For purposes of this section—
(1)The term “required distribution” means, with respect to any calendar year, the sum of—
(A)85 percent of the real estate investment trust’s ordinary income for such calendar year, plus
(B)95 percent of the real estate investment trust’s capital gain net income for such calendar year.
(2)The amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of—
(A)the grossed up required distribution for the preceding calendar year, over
(B)the distributed amount for such preceding calendar year.
(3)The grossed up required distribution for any calendar year is the required distribution for such year determined—
(A)with the application of paragraph (2) to such taxable year, and
(B)by substituting “100 percent” for each percentage set forth in paragraph (1).
(c)For purposes of this section—
(1)The term “distributed amount” means, with respect to any calendar year, the sum of—
(A)the deduction for dividends paid (as defined in section 561) during such calendar year (but computed without regard to that portion of such deduction which is attributable to the amount excluded under section 857(b)(2)(D)), and
(B)any amount on which tax is imposed under subsection (b)(1) or (b)(3)(A) 11 See References in Text note below. of section 857 for any taxable year ending in such calendar year.
(2)The amount determined under paragraph (1) for any calendar year shall be increased by the excess (if any) of—
(A)the distributed amount for the preceding calendar year (determined with the application of this paragraph to such preceding calendar year), over
(B)the grossed up required distribution for such preceding calendar year.
(3)The amount of the dividends paid during any calendar year shall be determined without regard to the provisions of section 858.
(d)The tax imposed by this section for any calendar year shall be paid on or before March 15 of the following calendar year.
(e)For purposes of this section—
(1)The term “ordinary income” means the real estate investment trust taxable income (as defined in section 857(b)(2)) determined—
(A)without regard to subparagraph (B) of section 857(b)(2),
(B)by not taking into account any gain or loss from the sale or exchange of a capital asset, and
(C)by treating the calendar year as the trust’s taxable year.
(2)(A)The term “capital gain net income” has the meaning given such term by section 1222(9) (determined by treating the calendar year as the trust’s taxable year).
(B)The amount determined under subparagraph (A) shall be reduced by the amount of the trust’s net ordinary loss for the taxable year.
(C)For purposes of this paragraph, the net ordinary loss for the calendar year is the amount which would be net operating loss of the trust for the calendar year if the amount of such loss were determined in the same manner as ordinary income is determined under paragraph (1).
(3)In the case of any deficiency dividend (as defined in section 860(f))—
(A)such dividend shall be taken into account when paid without regard to section 860, and
(B)any income giving rise to the adjustment shall be treated as arising when the dividend is paid.
Legislative History
Notes & Related Subsidiaries
Editorial Notes
References in Text
Subsection (b)(3)(A) of section 857, referred to in subsec. (c)(1)(B), was repealed and subsection (b)(3)(B) was redesignated (b)(3)(A) by Pub. L. 115–97, title I, § 13001(b)(2)(K)(i), Dec. 22, 2017, 131 Stat. 2096.
Amendments
1988—Subsec. (c)(1)(A). Pub. L. 100–647, § 1006(s)(3), inserted “(but computed without regard to that portion of such deduction which is attributable to the amount excluded under section 857(b)(2)(D)” after “such calendar year”. Subsec. (e)(2). Pub. L. 100–647, § 1006(s)(1), amended par. (2) generally, designating existing provisions as subpar. (A) and adding subpars. (B) and (C). 1986—Pub. L. 99–514 substituted “Excise tax on undistributed income of real estate investment trusts” for “Excise tax based on certain real estate investment trust taxable income not distributed during the taxable year” as section catchline and amended text generally. Prior to amendment text read as follows: “Effective with respect to taxable years beginning after December 31, 1979, there is hereby imposed on each real estate investment trust for the taxable year a tax equal to 3 percent of the amount (if any) by which 75 percent of the real estate investment trust taxable income (as defined in section 857(b)(2), but determined without regard to section 857(b)(2)(B), and by excluding any net capital gain for the taxable year) exceeds the amount of the dividends paid deduction (as defined in section 561, but computed without regard to capital gains dividends as defined in section 857(b)(3)(C) and without regard to any dividend paid after the close of the taxable year) for the taxable year. For purposes of the preceding sentence, the determination of the real estate investment trust taxable income shall be made by taking into account only the amount and character of the items of income and deduction as reported by such trust in its return for the taxable year.”
Statutory Notes and Related Subsidiaries
Effective Date
of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Effective Date
of 1986 AmendmentAmendment by Pub. L. 99–514 applicable to calendar years beginning after Dec. 31, 1986, see section 669(b) of Pub. L. 99–514, set out as a note under section 856 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 4981
Title 26 — Internal Revenue Code
Last Updated
Apr 5, 2026
Release point: 119-73not60