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Worker Classification		 R.E.I.T.'s

Real Estate Investment Trusts

How Formed? Real Estate Investment Trusts ("REITs") were originally formed as business trusts, but are now mostly formed as corporations. Since there is a requirement that there be at least 100 shareholders, REITs are most often publicly traded over the counter or on an exchange. According to NAREIT, there are over 300 REITs operating in the United States today. Their assets total over $200 billion. Nearly percent of these trade on the national stock exchanges: New York Stock Exchange (172 REITs); American Stock Exchange (31 REITs) NASDAQ (17 REITs).

A REIT must:

bulletbe a corporation, business trust or similar association;
bulletbe managed by a board of directors or trustees;
bullethave shares that are fully transferable;
bullethave a minimum of 100 shareholders;
bulletno more than 50 percent of the shares held by five or fewer individuals during the last half of each taxable year;
bulletinvest at least 75 percent of the total assets in real estate assets;
bulletderive at least 75 percent of gross income from rents from real property, or interest on mortgages on real property; and
bulletpay dividends of at least 95 percent of REIT taxable income.

Taxation: A corporation or trust that qualifies as a REIT generally does not pay corporate income tax to the Internal Revenue Service. This is a unique feature and one of the most attractive aspects of a REIT. Most states honor this federal treatment and do not require REITs to pay state income tax. This means that nearly all of a REIT's income can be distributed to shareholders, and there is no double taxation of the income to the shareholder. Unlike a partnership, a REIT cannot pass its tax losses on to its investors.