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Spinning to a Halt: Proposed Ban on REIT Spinoffs


In a bill proposed this week, House Republicans said they want to put a stop to REIT spinoffs for the next 10 years.

The REIT spinoff strategy has gone mainstream in 2015 as big retail companies explore spinning real estate assets into separate entities, unlocking billions and saving big tax bucks in the process.

The move could raise $4.3B for the government over the next decade, the Wall Street Journal reports. Still, the bill comes as a bit of a surprise. “Typically, it’s not Republicans that are trying to get in the way of business transactions,” Saul Rudo, head of the tax group at law firm Katten Muchin Rosenman, says.

Since 2013, eight US companies have done REIT spinoffs, more than in the previous four years combined. Sears spun off its real estate in July, raising $1.6B. Darden Restaurants spun off its real estate holdings just last month. Macy's and McDonald's considered REITs before eventually moving in another direction. (Franchise owners just weren’t lovin' the idea of a McREIT.) 

New York-based tax adviser Robert Willens says he gets the reasoning behind the bill, but isn’t a fan of the proposal. “I think it’s dangerous, and totally unwarranted, to deny tax-free status to a spinoff based purely on the ‘identity’ of the parties to the spinoff,” he says.

The rest of the proposed bill actually extends other tax breaks through 2016. [WSJ]