What is a REIT?
A Real Estate Investment Trust (“REIT”) is a “pass-through” entity that invests in qualified real estate assets. REITs are entitled to preferential tax treatment and can avoid most entity-level federal tax by distributing 90% of the REIT’s taxable income to investors and complying with detailed REIT rules set forth in the Internal Revenue Code provisions. In order to qualify for REIT status, the company must meet several criteria including:
- Distribute at least 90% of REIT’s taxable income
- Be jointly owned by at least 100 persons
- No more than 50% of the shares can be held by five or fewer individuals during the last half of each taxable year
- At least 75% of total investment assets must be in real estate
- Derive at least 75% of gross income from rents or mortgage interest
- Managed by a board of directors or trustees