IRC Section 856 for Senior Housing REITs | Compliance Software
IRC §856(c) sets the gross income tests (95% and 75%) that determine REIT qualification. §856(d) defines what counts as “rents from real property” — critical for senior housing where service income is often bundled. §856(l) governs taxable REIT subsidiaries, the structure used by most RIDEA-style senior housing operators.
What are the requirements for IRC Section 856 REIT compliance in senior housing?
IRC §856 requires a senior housing REIT to satisfy four ongoing tests every quarter and year: (1) at least 75% of total assets must be qualifying real estate, cash, or government securities; (2) at least 75% of gross income must come from real-property rents, interest on real-estate mortgages, and related real-estate sources, and at least 95% of gross income must come from those plus other passive sources; (3) at least 90% of taxable income must be distributed to shareholders; and (4) activities that fall outside §856(d) rents-from-real-property — most notably the bundled care and service rev…
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Section 856 defines what it means to be a REIT. SeniorCRE turns that legal framework into per-property, per-lease, and per-revenue-line classifications you can defend to auditors and the IRS.
SeniorCRE encodes these provisions as classification rules tied to your actual lease, GL, and operator data — so every dollar of revenue is mapped to its 856 treatment automatically.
Key points
- Section 856 sets the asset and income tests that define a REIT: at least 75% of assets must be qualifying real estate, 75% and 95% of gross income must come from qualifying sources, and TRS-held activities are capped under §856(l).
- Section 856(d) defines “rents from real property.” Service-heavy AL/MC properties often bundle care services into rent. SeniorCRE classifies each lease clause and flags impermissible tenant service income that would disqualify rent from the 75%/95% tests.
- RIDEA structures use a TRS to capture operating income from senior housing (impermissible at the REIT level). SeniorCRE models the EIK / TRS hierarchy natively and tracks the 20% TRS cap.
- Yes. The platform generates a per-property §856 memo with source data, classification rules applied, and approver chain — designed to defend treatment to external auditors and the IRS.
- Engine applies §856(d)(1)–(7) tests to each clause and flags impermissible service income.
- IRC §856 defines a Real Estate Investment Trust (REIT) and its qualification framework: the 75% asset test, the 95% and 75% gross income tests, the 90% distribution requirement, the rents-from-real-property rules in §856(d), and the 20% taxable REIT subsidiary cap under §856(l). For senior housing REITs, §856 governs RIDEA / SHOP structuring, bundled-service rent classification, and per-property…
Frequently asked questions
- What does IRC Section 856 require for senior housing REITs?
- Section 856 sets the asset and income tests that define a REIT: at least 75% of assets must be qualifying real estate, 75% and 95% of gross income must come from qualifying sources, and TRS-held activities are capped under §856(l).
- How does §856(d) apply to bundled service rent in senior housing?
- Section 856(d) defines “rents from real property.” Service-heavy AL/MC properties often bundle care services into rent. SeniorCRE classifies each lease clause and flags impermissible tenant service income that would disqualify rent from the 75%/95% tests.
- What is RIDEA and how does it interact with §856?
- RIDEA structures use a TRS to capture operating income from senior housing (impermissible at the REIT level). SeniorCRE models the EIK / TRS hierarchy natively and tracks the 20% TRS cap.
- Can SeniorCRE produce a defensible §856 memo per property?
- Yes. The platform generates a per-property §856 memo with source data, classification rules applied, and approver chain — designed to defend treatment to external auditors and the IRS.
https://seniorcre.com/irc-section-856-senior-housing