Tax Facts

7987 / What is the definition of “land” that is used in determining whether an asset qualifies as a real estate asset for purposes of the REIT asset tests?

In order to qualify as a REIT, at least 75 percent of the REIT’s assets must consist of certain defined assets, including real estate assets (see Q 7986). “Land” is a type of real property asset that qualifies as a real estate asset for this purpose.1 The IRS has recently clarified what types of property constitute “land” in the context of REITs.


Land includes any water or air space that is adjacent to the physical land itself, and also includes any natural products (such as crops growing on the land) and deposits that remain physically attached to the land. However, once a product is severed from the land (such as when crops are harvested or minerals are extracted) it no longer qualifies as land and is no longer treated as a real estate asset.2

The IRS regulations clarify that if crops, minerals or other products that were previously physically attached to the land are stored upon the land after they are severed, such storage does not serve to recharacterize the stored property as “land” for REIT asset testing purposes.





1.  IRC § 856(c).

2.  Treas. Reg. § 1.856-10(c).


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