Captive Real Estate Investment Trusts

The Maryland modified income of a captive real estate investment trust (REIT) must be determined by a new addition modification on the 2007 Maryland corporation income tax return and the addition amount must equal the amount of the dividends paid deduction allowed by IRS on the corporation's federal return.

Maryland law defines a captive REIT as a corporation, trust or association that is:

• A REIT under §856 of the Internal Revenue Code;
• Not regularly traded on an established securities market; and
• More than 50 percent of the voting power or value of the beneficial interests or shares of which is owned or controlled, indirectly or directly, at any time during the last half of the tax year by a single entity that is subject to the provisions of Subchapter C of Chapter 1 of the Internal Revenue Code.

A captive REIT under Maryland law does not include any of the following entities:

• A REIT that does not meet the three conditions specified for a captive REIT as discussed above.
• A person who is exempt from taxation under §501 of the Internal Revenue Code.
• A listed Australian property trust.
• A REIT that is, subject to regulations adopted by the Comptroller, intended to become regularly traded on an established securities market and meets the requirements of §856(a)(5) and (6) of the Internal Revenue Code by reason of §856(h)(2) of the Internal Revenue Code.

The addition modification must be reported on line 2f of Maryland Form 500.

For more information, see Chapter 584, Acts of 2007 and Chapter 583, Acts of 2007.