The definition of this term is the one used for real estate investment trusts (REITs) in Code section 856(d), except that the requirement in §856(d)(2)(C), that services provided to tenants and management of the property be performed by an independent contractor, does not apply to PTPs. Although income from these services is not prohibited, it is not considered rent and will be counted as non-qualifying income for purposes of the gross income test. This means that income from furnishing hotel or motel services, which are not customarily provided in connection with the rental of real estate, is not qualifying income.
- The term “rents from real property” includes:
- Rents from interests in real estate;
- Charges for services “customarily furnished or rendered” in connection with renting real estate, whether or not separately stated;
- Rent attributable to personal property (i.e., property other than real estate) that is leased in connection with the rental of real estate, but only if it does not exceed 15% of the total rent for the personal property plus the real estate.
- Rents will not qualify as “rents from real property” if:
- The determination of the rent amount depends in whole or in part on the income or profits of another person (other than amounts based on a fixed percentage of receipts or sales). If the rent does not qualify solely because the tenant receives rents from a subtenant which depends on the income or profits of another, only a proportionate amount will be excluded from the term “rents from real property.” The fact that the tenant derives substantially all its income from leasing to subtenants will also not keep the rent the tenant pays from being “rents from real property.”
- The rent is received from a tenant in whom the PTP owns an interest of 10% or more. A 5 percent de minimis rule is provided to prevent the attribution of limited partners’ holdings to a real estate PTP, which would otherwise occur under the tax code.
I.R.C. §§7704(d)(3), 856(d), S. Rpt. 100-445 (Report of the Senate Committee on Finance on the Technical Corrections Act of 1988), p. 425