ASC 842-974

Real Estate—Real Estate Investment Trusts

842 Leases

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Source downloaded: 2026-09-10T01:58:53.121Z.Record version 2c2cfc6dcd59. Effective date must be checked in the source.

In brief

IntermediateRecognition Initial measurement Leases Industry-specific

This narrow subtopic tells a real estate investment trust (REIT) how much it may capitalize when a related service corporation performs leasing services for it. The service corporation is never treated as an independent third party, no matter how the REIT accounts for its investment in it (equity method, consolidation, etc.). Capitalized amounts are capped at the initial direct costs the REIT could have capitalized under 842-10-30-9 through 30-10 had it incurred the leasing costs directly.

Key points (5)

The Subtopic addresses recognition issues for a REIT that holds an investment in a service corporation providing leasing services (842-974-05-1).
Scope follows Section 974-10-15, the REIT Overall Subtopic scope (842-974-15-1).
Regardless of the REIT's method of accounting for its investment, the service corporation shall not be considered an independent third party (842-974-25-1).
Costs capitalized by the REIT for leasing services provided by the service corporation shall be no greater than the initial direct costs that would have been capitalized had the REIT incurred the costs directly (842-974-25-1, referencing 842-10-30-9 through 30-10).
Any excess of amounts charged by the service corporation over that initial direct cost ceiling therefore cannot be capitalized.

For students. Tested as a related-party anti-abuse rule: a REIT cannot inflate capitalized leasing costs by routing them through an affiliated service corporation. The common misunderstanding is thinking the accounting method for the investment (or the fee actually paid) drives the answer—it does not; the cap is always the initial direct costs the REIT itself could have capitalized.

real estate investment trust service corporation initial direct costs leasing services related party not independent third party capitalization ceiling lessor cost capitalization

Machine-generated study aid for ASC 842-974. Check the source paragraphs below.

842-974-00Status

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842-974-00-1

The following table identifies the changes made to this Subtopic.

Paragraph	Action	Accounting Standards Update	Date

Contract	Added	Accounting Standards Update No. 2016-02	02/25/2016
Initial Direct Costs	Added	Accounting Standards Update No. 2016-02	02/25/2016
Lease	Added	Accounting Standards Update No. 2016-02	02/25/2016
Real Estate Investment Trust	Added	Accounting Standards Update No. 2016-02	02/25/2016
Service Corporation	Added	Accounting Standards Update No. 2016-02	02/25/2016

974-842-05-1	Added	Accounting Standards Update No. 2016-02	02/25/2016
974-842-15-1	Added	Accounting Standards Update No. 2016-02	02/25/2016
974-842-25-1	Added	Accounting Standards Update No. 2016-02	02/25/2016

842-974-05Overview and Background

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842-974-05-1

This Subtopic addresses recognition issues for a real estate investment trust with an investment in a service corporation providing leasing services.

842-974-15Scope and Scope Exceptions

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Overall Guidance

842-974-15-1

This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 974-10-15.

842-974-25Recognition

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842-974-25-1

Regardless of the method of accounting used by a real estate investment trust for its investment in a service corporation, the service corporation shall not be considered an independent third party and the amount of costs capitalized by the real estate investment trust for leasing services provided by the service corporation shall be no greater than the amount of initial direct costs (see paragraphs

842-10-30-9 through 30-10

) that would have been capitalized had the real estate investment trust incurred the costs directly.