Real Estate Investment Trusts

Real Estate Investment Trusts

By Kara M. Kraman Esq.

A Real Estate Investment Trust ("REIT") is a special form of business entity that is used to own real estate. A REIT can take the form of a corporation, but it can also be a trust or association.  A REIT provides investors with a way to invest in real estate that would be beyond their means as an individual by allowing them to invest as part of a group with other like-minded investors. By owning real estate through a REIT, an investor is able to pool capital and spread risk. A REIT also provides its shareholders  with a way to quickly and easily sell their interest in the real estate, without having to find a buyer for the real estate itself.

In addition to the advantages mentioned above, REITs also offer their shareholders a number of federal and state income tax advantages. Most states offer income tax benefits to REITs. However, because each state's rules are different regarding REITs, each state's law must be carefully examined to determine what benefits a REIT will receive, and what additional requirements a REIT may be subject to under state law.

Under federal law, a REIT is defined as a corporation, trust or association (1) which is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable shares, or by transferable certificates of beneficial interest; (3) which would be taxable as a domestic corporation; (4) which is neither a bank or an insurance company; (5) the beneficial ownership of which is held by 100 or more persons; (6) and which is not closely held.


This Analysis discusses the special rules that apply to REITs.


LEXIS users can access the complete commentary HERE. Additional fees may apply. (Approx. 13 pages)

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