Qualifying Criteria of an Real Estate Investment Trust (REIT)
A company to be classified as a REIT is required to meet several provisions of the Internal Revenue Code (IRC). Here are the main requirements:
- At least 75% of a REIT’s gross income shall come from real estate-related sources, such as rent or mortgage interest or real estate sales.
- At least 75% of a REIT’s assets shall be real estate-related assets, such as real property, mortgages on real property, or shares in other REITs.
- A REIT must have a minimum of 100 shareholders after its first year of existence, and no more than 50% of its shares can be held by five or fewer individuals. i.e., cannot be closely held.
- A REIT must distribute at least 90% of its taxable income to its shareholders in the form of dividends. A REIT shall be taxed as a corporation, but it can elect to be taxed as a pass-through entity if it meets certain requirements.
- A REIT shall be managed by a board of directors and shall have at least one independent director. However, meeting the above requirement does not necessarily make a company a good investing REIT.