REITs

A Real Estate Investment Trust (REIT) is a specialized corporate entity that owns, operates, or finances income-producing real estate across diverse sectors (e.g., residential apartments, industrial warehouses, data centers, medical facilities, or office towers). Two Code sections govern, and they are commonly merged into one. IRC §856, “Definition of real estate investment trust” sets the qualification tests — 75% of assets in real estate, cash, or government securities under IRC §856(c)(4), and the 75%/95% gross income tests of § 856(c)(2)–(3). IRC §857, “Taxation of real estate investment trusts and their beneficiaries” sets the price: IRC §857(a)(1) conditions REIT status on distributing at least 90% of REIT taxable income each year, achieved through the deduction for dividends paid under § 857(b)(2)(B).

The single layer of tax is why a REIT yields more than a C-corporation holding the same buildings. Publicly traded REITs trade on national exchanges, providing liquid, institutional access to real estate without the high transaction fees, management friction, and illiquidity of physical property ownership.