MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED STATES REAL PROPERTY INTERESTS.

SEC. 418. MODIFICATION OF THE TREATMENT OF CERTAIN REIT DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM SALES OR EXCHANGES OF UNITED STATES REAL PROPERTY INTERESTS.(a) In General.—Paragraph (1) of section 897(h) (relating to look-through of distributions) is amended by adding at the end the following new sentence: “Notwithstanding the preceding sentence, any distribution by a REIT with respect to any class of stock which is regularly traded on an established securities market located in the United States shall not be treated as gain recognized from the sale or exchange of a United States real property interest if the shareholder did not own more than 5 percent of such class of stock at any time during the taxable year.”.(b) Conforming Amendment.—Paragraph (3) of section 857(b) (relating to capital gains) is amended by adding at the end the following new subparagraph:“(F) Certain distributions.—In the case of a shareholder of a real estate investment trust to whom section 897 does not apply by reason of the second sentence of section 897(h)(1), the amount which would be included 118 STAT. 1513 in computing long-term capital gains for such shareholder under subparagraph (B) or (D) (without regard to this subparagraph)—“(i) shall not be included in computing such shareholder’s long-term capital gains, and“(ii) shall be included in such shareholder’s gross income as a dividend from the real estate investment trust.”.(c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.