Question

REITs can avoid being taxed like a corporation if:

a. They distribute 90% of their taxable income to shareholders
b. They invest solely in residential real estate
c. They are privately held
d. They operate as a partnership

Answer 1

A REIT can avoid corporate taxation if it distributes 90% of its taxable income to its shareholders, which allows the income to be taxed at the shareholder level.

Step-by-step explanation:

A Real Estate Investment Trust (REIT) can avoid being taxed like a corporation if it meets certain conditions. The most accurate answer to the provided question is that a REIT can avoid corporate taxation if it distributes 90% of its taxable income to shareholders. This requirement allows REITs to essentially pass through the income to shareholders who then pay the income tax, similar to the taxation of partnerships. REITs are subject to regulations and standards but the key tax requirement is the distribution of income. While other factors may influence a REIT's operations, such as whether it is privately held or invests in residential real estate, these do not determine the tax treatment as directly as the distribution requirement.

In order for a REIT (real estate investment trust) to avoid being taxed like a corporation, it must distribute 90% of its taxable income to shareholders. This means that the company must pass on a significant portion of its earnings to its investors. By doing so, the REIT can qualify for favorable tax treatment and avoid corporate-level taxes.