Prohibited Transactions Tax Safe Harbor Holding Period
Reduced to Two Years
Yesterday President Bush signed into law the Housing and
Economic Recovery Act of 2008 (the "Act"). The Act
makes several beneficial changes to the REIT rules,
incorporating most of the provisions contained in the
NAREIT-sponsored "REIT Investment Diversification and
Empowerment Act" that was first proposed in 2007.
The Prohibited Transactions Safe Harbor Holding Period
For many REITs, the most significant provision in the Act
shortens the prohibited transactions safe harbor holding period
from four years to two. Unless the safe harbor applies, a REIT
is potentially subject to a tax equal to 100% of the net income
derived from a prohibited transaction (i.e., a sale of
property held primarily for sale to customers in the ordinary
course of business, or "dealer property"). The
prohibited transaction safe harbor used to
