REIT

A real estate investment trust (REIT) is a company that owns, operates, or finances income-producing real estate and elects special tax treatment under IRC Sections 856 through 860. To qualify as a REIT, the company must invest at least 75% of its assets in real estate, derive at least 75% of its gross income from real estate sources such as rents or mortgage interest, and distribute at least 90% of its taxable income to shareholders each year as dividends. In exchange for meeting these tests, the REIT generally pays no corporate income tax on the income it distributes, avoiding the double taxation that ordinary corporations face; the tax is paid instead at the shareholder level. REITs come in several forms: publicly traded REITs that trade on stock exchanges and offer daily liquidity, public non-traded REITs that are registered with the SEC but do not trade on an exchange, and private REITs offered only to accredited or institutional investors. REITs give investors exposure to diversified, professionally managed real estate portfolios without owning property directly, but unlike a 1031 exchange, simply buying REIT shares does not defer capital gains. REIT dividends are often taxed as ordinary income, though a portion may be qualified or treated as return of capital.