IRS Clarifies Impact of Electric Vehicle Charging Stations on REIT Status

On March 29, 2024, the IRS released Private Letter Ruling 202413004, providing its first piece of guidance regarding whether a REIT may receive income from electric vehicle (EV) charging stations at its rental properties without detrimentally impacting its REIT status.

With the proliferation of EV users across the U.S. and particularly within the real estate industry, such as at outdoor facilities where EV users are looking to recharge, this ruling has been highly anticipated and provides much needed guidance for REIT taxpayers.

What Are the Facts Behind this Private Letter Ruling?

Below details how the REIT seeking the ruling from the IRS intends to use its EV charging stations. Specifically, the REIT:

• Will engage an independent contractor to provide tenants with certain utility services, such as furnishing electricity to light the properties and at certain properties, to furnish electricity to power and charge equipment and to power EV stations.
• Intends to make electricity available in storage areas, including to EV stations, to power and charge tenants’ equipment and in the parking areas for tenants, their guests and customers to charge their vehicles.
• Will make access to the EV stations available to all tenants. The REIT will not impose an access fee for the EV stations and will not charge a markup on the electricity used by the tenants, tenants’ guests and customers to charge their vehicles. The REIT will charge EV station users a fee for the total electricity they draw from an EV station and will, in turn, remit those amounts to the utility provider. 
• Intends to only install EV stations at storage properties where EV stations are considered customary at similar properties in the relevant geographic area. The number of EV stations will be appropriate for the number of tenants and a tenant’s expected guests or customers. 
• Represents that public use will be de minimis, although the EV stations may technically be accessible by the public.

What Does the IRS Ruling Mean for REITs?

Based on the facts above, the IRS ruled income the REIT receives for use of EV charging stations by its tenants and their guests should not create “impermissible tenant service income” within the structure of a REIT. Therefore, any EV charging station income a REIT receives will qualify as rents from real property for purposes of the REIT gross income tests, safeguarding a taxpayer’s REIT status.

With the uptick in federal, state and local incentives, e.g., rebates, grants, credits, etc., as well as the market share of EV users trending upward, this ruling will not only help REIT property owners maintain their status, but also potentially gain inroads to achieve and maintain “green status.” Green properties generally have higher occupancy rates, increased rents, better tenant retention and drive asset values upward, so this ruling can have a great impact on the industry moving forward.

Contact Dave Sobochan or a member of your service team to discuss this topic further.

Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.