With the tie-breaking vote cast by Vice President Vance on July 1, 2025, the Senate approved an amended version of H.R. 1, originally titled the “One Big Beautiful Bill Act,” which was previously approved by the House of Representatives on May 22, 2025 (the House of Representatives’ version, the “House Bill,” and the Senate’s version, the “Amended O3BA”).[1]  On July 3, 2025, the House of Representatives approved the Amended O3BA by a four-vote margin. President Trump signed the Amended O3BA into law on July 4, 2025. The provisions of the Amended O3BA, as compared to the House Bill and to prior law, generally are good news for real estate investment trusts (“REITs”) and their shareholders.[2]  Most notably, the Amended O3BA eliminates so‑called “section 899” (Enforcement of Remedies Against Unfair Foreign Taxes), which was proposed in the House Bill. The elimination of section 899 is particularly good news for REITs and their shareholders as section 899, if enacted, would have had a significant negative impact on foreign investment in U.S. real estate. In addition, the Amended O3BA retains the increase in the taxable REIT subsidiary (“TRS”) asset test from 20% to 25%, as compared to prior law. Finally, with respect to the clean energy investment credit under Section 48E[3] (the “Energy ITC”), the Amended O3BA accelerates the termination of the Energy ITC with respect to wind and solar electricity generation facilities (but generally retains transferability of available Energy ITCs), as compared to prior law. The Amended O3BA’s most significant changes to prior law are briefly summarized below. Section 199A Deduction[4] The Amended O3BA preserves the eligibility of REIT ordinary dividends for the qualified business income deduction in Section 199A, and makes that deduction permanent. TRS Asset Test[5] Effective for taxable years beginning after December 31, 2025, the Amended O3BA increases the quarterly asset test limit on securities of TRSs from 20% to 25%. Limitation on Business Interest Deduction[6] The limitation on business interest deductions in Section 163(j) was more favorable to taxpayers for the period through December 31, 2021 than it was immediately prior to enactment of Amended O3BA. Through December 31, 2021, the Section 163(j) limitation generally was calculated as the product of 30% multiplied by an adjusted taxable income amount which was roughly equivalent to earnings before interest, taxes, depreciation and amortization (“EBITDA”). For periods beginning after December 31, 2021, Section 163(j) calculated the 30% limitation based on an amount which was roughly equivalent to earnings before interest and taxes (or “EBIT,” i.e., an amount after depreciation and amortization). When the Section 163(j) limitation starts to pinch, most REITs make the irrevocable election for “electing real property trades or businesses” to avoid the Section 163(j) limitation altogether. The Amended O3BA applies the more favorable EBITDA calculation for taxable years starting on or after January 1, 2025, and makes the more favorable EBITDA calculation permanent.[7] However, for taxable years beginning after December 31, 2025, the Amended O3BA generally calculates the Section 163(j) limitation prior to the application of any interest capitalization provisions.[8] As before, the exception for “electing real property trades or businesses” remains available to REITs. Energy ITCs and Transferability[9] The Amended O3BA terminates the availability of the Energy ITC with respect to wind and solar electricity generation facilities (but not for energy storage technology at such wind and solar generation facilities) the construction of which begins after July 4, 2026 and which is placed in service after December 31, 2027. The Amended O3BA also restricts access to the credit for certain prohibited foreign entities (“PFEs”) by (i) disallowing any credit for a facility that commences construction after December 31, 2025 that includes any material assistance from a PFE and (ii) disallowing any credit for a PFE for taxable years beginning after enactment. However, the Amended O3BA retains transferability of available Energy ITCs (other than transfers to certain PFEs). [1] The Amended O3BA, as passed by the Senate, is available at https://www.congress.gov/bill/119th-congress/house-bill/1/text. Although the title of H.R. 1 as the “One Big Beautiful Bill Act” was changed to “the Act” prior to approval by the Senate, we refer to the original name for clarity. [2] For discussions of the original provisions of the House Bill and of the Senate Finance Committee’s bill applicable to REITs and their shareholders, see Sullivan’s client alerts here and here, respectively. [3] References herein to “Section,” other than “Amended O3BA Section,” refer to sections of the Internal Revenue Code of 1986, as amended. [4] Amended O3BA Section 70105. [5] Amended O3BA Section 70439. [6] Amended O3BA Sections 70303, 70341 and 70342. [7] Amended O3BA Section 70303. [8] Amended O3BA Section 70341. [9] Amended O3BA Sections 70512(h) and 70513.

On June 16, 2025, the U.S. Senate Finance Committee released its version (the “Senate Bill”)[1] of the “One Big Beautiful Bill Act” passed by the U.S. House of Representatives on May 22, 2025 (the "House Bill”).[2] This alert summarizes the changes made by the Senate Finance Committee to the House Bill to the extent those changes impact real estate investment trusts (“REITs”) and their shareholders. (See Sullivan’s Client Alert regarding the House Bill here.) In general, it is a mixed bag for REITs – some changes are positive; some changes are negative. We start with the positive changes. Limitation on Business Interest Deduction[3] The limitation on business interest deductions in Section 163(j)[4] was more favorable to taxpayers for the period through December 31, 2021 than it is currently. Through December 31, 2021, the Section 163(j) limitation generally was calculated as the product of 30% multiplied by an adjusted taxable income amount which was roughly equivalent to earnings before interest, taxes, depreciation and amortization (“EBITDA”). For periods beginning after December 31, 2021, Section 163(j) calculates the 30% limitation based on an amount which is roughly equivalent to earnings before interest and taxes (or “EBIT”, i.e., an amount after depreciation and amortization). When the Section 163(j) limitation starts to pinch, most REITs make the irrevocable election for “electing real property trades or businesses” to avoid the Section 163(j) limitation altogether. Like the House Bill, the Senate Bill would apply the more favorable EBITDA calculation starting in 2025. Unlike the House Bill, the Senate Bill would make the more favorable EBITDA calculation permanent (whereas the House Bill would revert back to the EBIT calculation after 5 years). In an additional change to the House Bill, the Senate Bill calculates the Section 163(j) limitation prior to the application of any interest capitalization provisions.[5] As before, the exception for “electing real property trades or businesses” would remain available. Energy Tax Credits and Transferability[6] The energy tax credit used by many REITs currently is the energy investment credit under Section 48E (the “Energy ITC”). The House Bill would terminate the availability of the Energy ITC for facilities (i) the construction of which begins after the date which is 60 days after the date of enactment of the House Bill or (ii) which are placed in service after December 31, 2028. The House Bill also would restrict access to the credit for certain prohibited foreign entities (“PFEs”) by (i) disallowing any credit for a facility that commences construction after December 31, 2025 that includes any material assistance from a PFE and (ii) disallowing any credit for a PFE for taxable years beginning after enactment. Lastly, the House Bill would repeal the transferability of Energy ITCs for facilities for which construction begins after the date that is two years after the date of enactment. The Senate Bill would retain current law’s phase out provisions, except that it would phase out the Energy ITC with respect to wind and solar electricity generation facilities (but not for energy storage technology at such wind and solar generation facilities) as follows: (i) for investments the construction of which begins in calendar year 2026, such investments would receive 60% of the credit values; (ii) for investments the construction of which begins in calendar year 2027, such investments would receive 20% of the credit values; and (iii) for investments the construction of which begins after calendar year 2027, the Energy ITC would be eliminated. The Senate Bill would retain the restrictions on PFEs but would not repeal transferability of the Energy ITC. Increased Rates of Tax on Certain Foreign Persons[7] The House Bill would add a new Section 899 (Enforcement of Remedies Against Unfair Foreign Taxes), which would increase the rate of tax for an “applicable person” (i.e., a government of or citizen or resident of a foreign country determined to impose “unfair foreign taxes”, which includes digital services taxes and undertaxed profits taxes), including for withholding taxes on dividends and dispositions of U.S. real property interests. Under the House Bill, the rate of tax would increase over the specified rate, whether by statute or treaty, by 5% annually up to an increase of 20% over the statutory rate (without regard to the treaty rate) beginning at the later of three dates: (i) 90 days after enactment of the House Bill, (ii) 180 days after enactment of the discriminatory tax, and (iii) the date that the discriminatory tax begins to apply. In addition, the House Bill would provide that the Section 59A base erosion tax apply to a broader class of foreign corporations in offending countries, increase the base amounts subject to the tax, eliminate offsetting credits, and increase the tax rate to 12.5% rate instead of the baseline 10% rate (the “Super BEAT”). After the House Bill passed, the real estate industry advocated for changes to Section 899 because foreign investors are pausing investments in U.S. real estate on account of the proposed legislation.[8] The Senate Bill made some favorable changes to Section 899 but did not adopt the changes requested by the real estate industry: among other items, the real estate industry requested an exception for passive or minority investors and grandfathered relief for existing investments. The Senate Bill would narrow the general scope of Section 899 to apply to foreign taxpayers resident in jurisdictions imposing “unfair foreign taxes” that are “extraterritorial taxes”, which would specifically include taxes imposed under an undertaxed profits rule, but not digital services taxes or diverted profits taxes. The Senate Bill provides for similar “Super BEAT” provisions to certain corporations with respect to a foreign country which has either an “extraterritorial tax” or a “discriminatory tax” (and “discriminatory tax” would specifically include a digital services tax). The Senate Bill would not apply Section 899 before January 1, 2027 (whereas, under the House Bill, Section 899 could apply as early as January 1, 2026). In addition, the Senate Bill caps the retaliatory tax at 15% above the otherwise applicable rate (e.g., a taxpayer subject to a 30% rate reduced to zero by a treaty would be subject to a 15% rate under the Senate Bill; in contrast, the same taxpayer would subject to a 50% rate under the House Bill, which caps the retaliatory tax at 20% above the non-treaty rate). Finally, the Senate Bill makes two clarifications to the House Bill. First, the portfolio interest exemption[9] would not be impacted by Section 899. The second clarification is less favorable – qualified foreign pension plans (which are otherwise excluded from FIRPTA[10]) would be subject to Section 899. Section 199A Deduction[11] The House Bill would preserve the eligibility of REIT ordinary dividends for the qualified business income deduction in Section 199A and would make the deduction permanent. The Senate Bill would keep those favorable changes but would not increase the Section 199A deduction from 20% to 23%, as provided in the House Bill. TRS Asset Test[12] Unlike the House Bill, the Senate Bill would not increase the 20% quarterly asset test limit on securities of taxable REIT subsidiaries to 25%.  [1] On June 16, 2025, the U.S. Senate Finance Committee released its legislative text (available at https://www.finance.senate.gov/imo/media/doc/finance_committee_legislative_text_title_vii.pdf). [2] H.R. 1 — 119th Congress: One Big Beautiful Bill Act was reported in the House on May 20, 2025 (available at https://www.congress.gov/bill/119th-congress/house-bill/1/text). On May 22, 2025, pursuant to H. Res. 436 (available at https://www.congress.gov/bill/119th-congress/house-resolution/436/text), H.R. 1 — 119th Congress was amended by substituting the text of Rules Committee Print 119-3 (available at https://rules.house.gov/sites/evo-subsites/rules.house.gov/files/documents/rcp_119-3_final.pdf), as modified by the amendment printed in House Report 119-113 (available at https://www.congress.gov/congressional-report/119th-congress/house-report/113), and adopted, as amended. [3] House Bill Section 111003; Senate Bill Section 70303. [4] References herein to “Section”, other than “House Bill Section” or “Senate Bill Section”, refer to sections of the Internal Revenue Code of 1986, as amended. [5] Senate Bill Section 70341. [6] House Bill Section 112009; Senate Bill Section 70513. [7] House Bill Section 112028; Senate Bill Section 70361. [8] Letter to the Honorable John Thune and the Honorable Mike Crapo, dated June 12, 2025 (available at https://www.rer.org/wp-content/uploads/Sec.-899-real-estate-letter-FINAL-06.12.2025.pdf). [9] Sections 871(h) and 881(c). [10] Section 897(l). [11] House Bill Section 110005; Senate Bill Section 70105. [12] House Bill Section 111113.