[IMGCAP(1)]Real estate investment trusts were originally created to permit tax-efficient public investment in real estate, but REITs have also found wide use as private vehicles.

An entity becomes a REIT by making a tax election and satisfying certain requirements. In particular, a REIT’s assets must be primarily real estate and its income primarily derived from real estate. REITs must also satisfy certain ownership, operational and other tests. REITs are partial conduits. A REIT, unlike a “regular” corporation, deducts dividends paid. Its shareholders are taxed on dividends received. Based on a REIT’s long-term capital gains, its dividends may be taxed at long-term capital rates. The balance of a REIT’s dividends are taxed as ordinary income.

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