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Real Estate Investment Trusts

Definition:

To qualify as a REIT (Real Estate Investment Trusts), an organization:

  • Must be a corporation, trust, or association.
  • Must be managed by one or more trustees or directors.
  • Must have beneficial ownership (a) evidenced by transferable shares, or by transferable certificates of beneficial interest; and (b) held by 100 or more persons. (The REIT does not have to meet this requirement until its 2nd tax year.)
  • Would otherwise be taxed as a domestic corporation.
  • Must be neither a financial institution (referred to in section 582(c)(2)), nor a subchapter L insurance company.
  • Cannot be closely held, as defined in section 856(h). (The REIT does not have to meet this requirement until its 2nd tax year.)

 

REITs benefit from a favorable tax regime that exempts it from Federal income tax subject to certain distribution requirements.  REITs can designate a portion of their distributions that are gains from the disposition of U.S. real property.

Causing a portion of the sale to be taxed at favorable rates to U.S. shareholders. Code: § 856