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Saturday, December 20, 2008

United States real estate investment trust

A real estate investment trust, or REIT, is a company that owns, and in most cases, operates income-producing real estate. Some REITs finance real estate. To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

Qualification

In order to qualify for the advantages of being a pass-through entity for U.S. corporate income tax, a REIT must:

* Be structured as corporation, trust, or association
* Be managed by a board of directors or trustees
* Have transferable shares or transferable certificates of interest
* Otherwise be taxable as a domestic corporation
* Not be a financial institution or an insurance company
* Be jointly owned by 100 persons or more
* Have 95 percent of its income derived from dividends, interest, and property income
* Pay dividends of at least 90% of the REIT's taxable income
* No more than 50% of the shares can be held by five or fewer individuals during the last half of each taxable year (5/50 rule)
* At least 75% of total investment assets must be in real estate
* Derive at least 75% of gross income from rents or mortgage interest
* No more than 20% of its assets may consist of stocks in taxable REIT subsidiaries.
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