Real estate investment trusts, or REITs, are a group form of real estate investment that own and manage commercial or other income-producing properties such as shopping centers, residential rental real estate, office buildings, warehouses, and timberland. REITs must meet certain requirements in order to be considered as such by the IRS, including having shares in the organization that are fully transferable, having at least 100 shareholders, and paying those shareholders a minimum of 90% of taxable income as dividends. The tax difference between a traditional C-corporation (C-corp) and a REIT is that C-corps are basically subject to double taxation, paying federal corporate income taxes as well as federal and state income taxes paid by shareholders, with both corporate and personal taxes paid on the same income. As long as they continue to meet the requirements, however, REITs are permitted to deduct payments made to shareholders as dividends from their corporate income tax, which usually means they pay no corporate income tax at all. REIT shareholders are still required to pay income taxes on dividends and capital gains.
Terms, Definitions, and Concepts: Finance and Investment, Forestry and Silviculture, Real Estate, Timber