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deferred arrangement, or amounts

may not claim a bad debt deduction

See Temporary Regulations section

contributed under a salary reduction SEP

unless the amount was previously

1.163-8T for the interest allocation rules.

agreement or a SIMPLE IRA plan.

included in income.

Do not deduct the following interest.

•

Disallowance of deduction for

Line 13. Rents. If the REIT rented or

Interest on indebtedness incurred or

employee compensation in excess of

leased a vehicle, enter the total annual

continued to purchase or carry obligations

$1 million. Publicly held corporations

rent or lease expense paid or incurred

if the interest is wholly exempt from

may not deduct compensation to a

income tax. For exceptions, see section

during the year. Also complete Part V of

“covered employee” to the extent that the

Form 4562, Depreciation and

265(b).

•

compensation exceeds $1 million.

Amortization. If the REIT leased a vehicle

For cash basis taxpayers, prepaid

Generally, a covered employee is:

interest allocable to years following the

for a term of 30 days or more, the

•

The chief executive officer of the

deduction for the vehicle lease expense

current tax year (e.g., a cash basis

corporation (or an individual acting in that

may have to be reduced by an amount

calendar year taxpayer who in 2002

capacity) as of the end of the tax year or

prepaid interest allocable to any period

called the inclusion amount.

•

An employee whose total

after 2002 can deduct only the amount

The REIT may have an inclusion

compensation must be reported to

allocable to 2002).

•

amount if:

shareholders under the Securities

Interest and carrying charges on

Exchange Act of 1934 because the

straddles. Generally, these amounts must

And the vehicle’s

employee is among the four highest

be capitalized. See section 263(g).

FMV on the first

compensated officers for that tax year

Special rules apply to:

day of the lease

•

(other than the chief executive officer).

Interest on which no tax is imposed

The lease term began:

exceeded:

For this purpose, compensation does

(see section 163(j));

•

not include the following:

Foregone interest on certain

•

After 12/31/98 . . . . . . . . . . . . . . .

$15,500

Income from certain employee trusts,

below-market-rate loans (see section

annuity plans, or pensions and

7872); and

After 12/31/96 but before 1/1/99 . . .

$15,800

•

Any benefit paid to an employee that is

Original issue discount on certain

After 12/31/94 but before 1/1/97 . . .

$15,500

excluded from the employee’s income.

high-yield discount obligations. (See

The deduction limit does not apply to:

After 12/31/93 but before 1/1/95 . . .

$14,600

section 163(e) to figure the disqualified

•

Commissions based on individual

portion.)

If the lease term began before January 1, 1994, or,

performance;

the leased vehicle was an electric vehicle, see Pub.

•

Line 16. Depreciation. Besides

Qualified performance-based

463,Travel, Entertainment, Gift and Car Expenses, to

depreciation, include on line 16 the part of

compensation; and

find out if the REIT has an inclusion amount. See

•

the cost that the REIT elected to expense

Pub. 463 for instructions on figuring the inclusion

Income payable under a written,

amount.

under section 179 for certain tangible

binding contract in effect on February 17,

property placed in service during tax year

1993.

2002 or carried over from 2001. See

The $1-million limit is reduced by

Line 14. Taxes and licenses. Enter

Form 4562 and its instructions.

amounts disallowed as excess parachute

taxes paid or incurred during the tax year,

payments under section 280G.

but do not include the following:

Line 18. Other Deductions

•

Federal income taxes (except for the

For details, see section 162(m) and

Note: Do not deduct fines or penalties

tax imposed on net recognized built-in

Regulations section 1.162-27.

paid to a government for violating any

gain allocable to ordinary income).

Line 10. Salaries and wages. Enter total

•

law.

Foreign income taxes if a tax credit is

salaries and wages paid or incurred for

Attach a schedule, listing by type and

claimed.

the tax year reduced by any work

•

Taxes not imposed on the REIT.

amount, all allowable deductions that are

opportunity credit from Form 5884, any

•

not deductible elsewhere on the return.

Taxes, including state or local sales

empowerment zone and renewal

Enter the total on line 18. Include

taxes, that are paid or incurred in

community employment credit from Form

connection with an acquisition or

amortization and organization expenses.

8844, any Indian employment credit from

disposition of property (these taxes must

Generally, a deduction may not be taken

Form 8845, any welfare-to-work credit

for any amount that is allocable to a class

be treated as a part of the cost of the

from Form 8861, and any New York

of exempt income. See section 265(b) for

acquired property or, in the case of a

Liberty Zone business employee credit

disposition, as a reduction in the amount

exceptions.

from Form 8884. See the instructions for

realized on the disposition).

these forms for more information. Do not

Charitable contributions. Enter

•

Taxes assessed against local benefits

include salaries and wages deductible

contributions or gifts actually paid within

that increase the value of the property

elsewhere on the return, such as elective

the tax year to or for the use of charitable

assessed (such as for paving, etc.).

contributions to a section 401(k) cash or

and governmental organizations

•

Taxes deducted elsewhere on the

deferred arrangement, or amounts

described in section 170(c) and any

return.

contributed under a salary reduction SEP

unused contributions carried over from

•

Excise taxes imposed under section

agreement or a SIMPLE IRA plan.

prior years.

4981 on undistributed REIT income.

If the REIT provided taxable fringe

See section 164(d) for apportionment

REITs reporting taxable income on the

benefits to its employees, such as

accrual method may elect to treat as paid

of taxes on real property between seller

personal use of a car, do not

during the tax year any deductible

and purchaser.

CAUTION

deduct as wages the amounts allocated

contributions paid by the 15th day of the

Line 15. Interest

for depreciation and other expenses

3rd month after the end of the tax year if

claimed on lines 16 and 18.

the contributions were authorized by the

Note: The deduction for interest is limited

board of directors during the tax year.

when the REIT is a policyholder or

Line 11. Repairs and maintenance.

Attach a declaration to the return, signed

beneficiary with respect to a life

Enter the cost of incidental repairs and

by an officer, stating that the resolution

insurance, endowment, or annuity

maintenance, such as labor and supplies,

authorizing the contributions was adopted

contract issued after June 8, 1997. For

that do not add to the value of the

by the board of directors during the tax

details, see section 264(f). Attach a

property or appreciably prolong its life.

year. Also attach a copy of the resolution.

statement showing the computation of the

New buildings, machinery, or permanent

deduction.

improvements that increase the value of

Limitation on deduction. The total

the property are not deductible. They

The REIT must make an interest

amount claimed may not be more than

must be depreciated or amortized.

allocation if the proceeds of a loan were

10% of taxable income computed without

Line 12. Bad debts. Enter the total debts

used for more than one purpose (e.g., to

regard to the following:

•

that became worthless in whole or in part

purchase a portfolio investment and to

Any deduction for contributions,

•

during the tax year. A cash basis taxpayer

acquire an interest in a passive activity).

The special deductions on line 21b,

-8-

Instructions For Form 1120-Reit - U.s. Income Tax Return For Real Estate Investment Trusts - 2002 Page 8

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