Questions and Answers
What does REIT stand for?
Real Estate Investment Trust
What is a REIT?
A company that manages a portfolio of real estate investments to earn profits for shareholders.
How can a REIT avoid being taxed as a corporation?
Which of the following is an equity security?
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Cash dividends from REITs are:
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All of the following are true of REITs EXCEPT:
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A company set up to invest in real estate that must distribute at least 90% of its net income to avoid paying taxes is called:
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Which of the following terms or phrases does NOT apply to REITs?
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Study Notes
Real Estate Investment Trusts (REITs) Overview
- REIT stands for Real Estate Investment Trust.
- REITs manage diverse portfolios of real estate investments to generate profits for shareholders.
- Typically, REITs are publicly traded and provide long-term financing for real estate projects.
Taxation of REITs
- To avoid taxation as a corporation, a REIT must meet certain criteria:
- At least 75% of total investment assets must be in real estate.
- At least 75% of gross income must come from rents or mortgage interest.
- 90% or more of net investment income must be distributed to shareholders.
Equity and Debt Securities
- A REIT share is classified as an equity security, representing undivided ownership in real estate investments.
- Other options such as mortgage-secured bonds and collateralized mortgage obligations are considered debt securities.
Tax Implications on Cash Dividends
- Cash dividends from REITs are taxed as ordinary income, not as long-term capital gains or qualified dividends.
REIT Characteristics
- REITs must comply with Subchapter M, including:
- Distributing at least 90% of their net investment income.
- Investing at least 75% of assets in real estate-related activities.
- REITs do not pass along losses to shareholders, distinguishing them from Direct Participation Programs (DPPs).
Investment Structure
- A company primarily investing in real estate, mortgages, or related loans and distributing 90% of its net income to avoid taxes is a real estate investment trust.
Unique Features of REITs
- REITs are traded in the secondary market and cannot be redeemed.
- Dividends from REITs are taxed at ordinary income rates rather than at reduced rates for qualified dividends.
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Description
Test your knowledge on Real Estate Investment Trusts (REITs) with this flashcard quiz. Learn key concepts such as what REIT stands for and how they operate. Perfect for students and professionals in real estate finance.
