(a) 90% of Alexanders, Inc.s real estate investment trust taxable income, computed without regard to the dividends paid deduction and Alexanders, Inc.s
net capital gain, and (b) 90% of the net
after-tax
income, if any, from foreclosure property minus (2) the sum of certain items of
non-cash
income. Under the
law in effect prior to January 1, 2015, a preferential dividend was not eligible for a dividends paid deduction and, therefore, was not counted toward this distribution requirement. Effective for distributions in Alexanders,
Inc.s taxable year that began on January 1, 2015 and all future taxable years, preferential dividends may be taken into account for purposes of determining Alexanders, Inc.s dividends paid deduction so long as it qualifies as
a publicly offered REIT (as defined above).
In addition, if Alexanders, Inc. acquired an asset from a C corporation in a carryover basis
transaction and disposes of such asset within 5 years of acquiring it, Alexanders, Inc. will be required to distribute at least 90% of the
after-tax
built-in
gain,
if any, recognized on the disposition of the asset.
These distributions must be paid in the taxable year to which they relate, or in the following
taxable year if declared before Alexanders, Inc. timely files its tax return for the year to which they relate and if paid on or before the first regular dividend payment after the declaration. However, for Federal income tax purposes, these
distributions that are declared in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if they were paid on December 31 of the year declared.
To the extent that Alexanders, Inc. does not distribute all of its net capital gain or distributes at least 90%, but less than 100%, of its real estate
investment trust taxable income, as adjusted, it will have to pay tax on the undistributed amounts at regular ordinary and capital gain corporate tax rates. Furthermore, if Alexanders, Inc. fails to distribute during each calendar year at
least the sum of (a) 85% of its ordinary income for that year, (b) 95% of its capital gain net income for that year and (c) any undistributed taxable income from prior periods, Alexanders, Inc. would have to pay a 4% excise tax
on the excess of the required distribution over the sum of the amounts actually distributed and retained amounts on which income tax is paid at the corporate level.
Alexanders, Inc. intends to satisfy the annual distribution requirements.
From time to time, Alexanders, Inc. may not have sufficient cash or other liquid assets to meet the 90% distribution requirement due to timing
differences between (a) when Alexanders, Inc. actually receives income and when it actually pays deductible expenses and (b) when Alexanders, Inc. includes the income and deducts the expenses in arriving at its taxable income
or as described in the second preceding paragraph, if the deductibility of Alexanders, Inc.s business interest expense is limited. If timing differences of this kind occur, in order to meet the 90% distribution requirement,
Alexanders, Inc. may find it necessary to arrange for short-term, or possibly long-term, borrowings or to pay dividends in the form of taxable stock dividends.
Under certain circumstances, Alexanders, Inc. may be able to rectify a failure to meet the distribution requirement for a year by paying
deficiency dividends to stockholders in a later year, which may be included in Alexanders, Inc.s deduction for dividends paid for the earlier year. Thus, Alexanders, Inc. may be able to avoid being taxed on amounts
distributed as deficiency dividends; however, Alexanders, Inc. will be required to pay interest based upon the amount of any deduction taken for deficiency dividends.
New Interest Deduction Limitation
Commencing in taxable years beginning after December 31, 2017, Section 163(j) of the Code limits the deductibility of net interest expense paid or
accrued on debt properly allocable to a trade or business to 30% of adjusted taxable income, subject to certain exceptions. Any deduction in excess of the limitation is carried forward and may be used in a subsequent year, subject to the
30% limitation. Adjusted taxable income is determined without regard to certain deductions, including those for net interest expense, net operating loss carryforwards and, for taxable years beginning before January 1, 2022, depreciation,
amortization and depletion.
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