What Is a Real Estate Investment Trust? The United States of America Congress established real estate investment trusts (REITs) in 1960 as an amendment to the Cigar Excise Tax Extension of 1960. The provision allows individual investors to buy shares in commercial real estate portfolios that receive income from a variety of properties.
A company that qualifies as a REIT generally is permitted to deduct dividends paid to stockholders from its taxable income, which reduces the amount ofUnited States of America (USA) corporate-level tax the REIT is required to pay. As a result, and to comply with certain (USA) distribution requirements applicable to REITs, most REITs distribute at least 100% of their taxable income to stockholders and, therefore, do not pay USA federal corporate-level taxes in most circumstances.
Most USA states follow this USA federal tax treatment and allow REITs to deduct dividends paid to stockholders from their taxable income for USA state tax purposes. Certain REIT subsidiaries, however, are fully subject to their respective Country / federal and or state corporate-level income taxes, such as Australian Managed Investment Trusts (MIT).