A Real Estate Investment Trust (REIT) is a company whose investments and operations make it eligible for certain tax benefits for U.S. federal tax purposes.
A REIT is a corporation that primarily invests in real estate assets, such as commercial buildings, apartments, hotels, warehouses, and medical facilities.
Generally, corporations organized in the U.S. are subject to corporate federal income taxes on their net taxable income. As of 2023, the corporate federal tax rate is 21% on net taxable income.
However, REITs are not subject to federal corporate income taxes on their taxable income as long as the entity distributes at least 90% of its taxable income to shareholders.
For an entity to qualify as a REIT, the entity must derive at least 95% of its gross income from sources described in Section 856(c)(2) and at least 75% of its gross income from sources described in Section 856(c)(3).
Example REIT for Delaware Corporation
Corporation A, a Delaware corporation, is a publicly traded entity on the NASDAQ. The corporation invests solely in commercial real estate properties across the United States.
The corporation generated $50,000,000 of revenue for 2023, comprising $49,500,000 of rental income and $500,000 of interest on bank deposits. The corporation’s net income for 2023 is $4,000,000, and it distributes 100% of its income to shareholders during the 2023 fiscal year.
Annual Tax Filing Obligations
A REIT organized in the U.S. must file an annual Form 1120-REIT to report income, expenses, and distributions to shareholders.