A REIT (real estate investment trust) is a company that owns, operates, or finances income-producing real estate and elects a special tax status: by distributing at least 90% of its taxable income to shareholders and meeting asset and income tests, it pays no entity-level corporate tax. Created by Congress in 1960, the structure made institutional real estate ownable in share form.
The qualification rules that define the structure
REIT status is a tax election with continuing tests: at least 75% of assets in real estate, cash, and government securities; at least 75% of gross income from real-estate sources (rents, mortgage interest, gains); the 90% distribution requirement; and ownership breadth rules (100+ shareholders, no five persons owning more than half). The consequences advisors should internalize: REITs are structurally high-payout vehicles (retaining little capital — growth requires raising it), dividends are mostly ordinary income rather than qualified (softened by the 20% Section 199A deduction and by return-of-capital portions that depreciation makes routine), and REIT shares generate no K-1 and generally no UBTI — the tax packaging that makes the wrapper IRA-friendly and explains much of retail product design.
The family tree matters more than the acronym. By what they hold: equity REITs (own properties, collect rent) versus mortgage REITs (hold real estate debt, earn spread). By how they trade: listed REITs (exchange-traded, daily liquidity, equity-market volatility), non-traded REITs (SEC-registered, sold at NAV through advisors, program-based liquidity — SQX Alts’ core beat), and private REITs (exempt offerings, least disclosure). Most large REITs operate as UPREITs, holding assets through an operating partnership whose units enable 721 exchanges — the structural bridge between direct property ownership and REIT shares that the DST-to-REIT pipeline runs across.
Sector diversity completes the picture: beyond offices and malls, the modern REIT universe spans industrial, data centers, cell towers, self-storage, single-family rental, healthcare, and timber — meaning “REIT exposure” describes a wrapper, not a bet, until the property types underneath are named.
FAQ
What is a REIT in simple terms?
A company that owns income real estate (or real estate loans) and pays out at least 90% of its taxable income to shareholders — skipping corporate tax in exchange.
How are REIT dividends taxed?
Mostly as ordinary income (with a 20% pass-through deduction for the qualifying portion), plus capital-gain and return-of-capital components the annual 1099 breaks out — not as qualified dividends.
What's the difference between listed, non-traded, and private REITs?
How you buy and exit: listed REITs trade daily on exchanges; non-traded REITs sell at NAV through advisors with capped repurchase programs; private REITs are exempt offerings with the least liquidity and disclosure.
Related terms
Non-Traded REIT · Equity REIT vs. Mortgage REIT · UPREIT · Return of Capital · UBTI
Educational content only; not investment, tax, or legal advice. Consult qualified professionals regarding your specific circumstances.
