Final answer:
A Real Estate Investment Trust (REIT) must generate at least 75% of its gross income from real estate-related sources to qualify for REIT status, which provides tax benefits. This allows individual investors to engage in real estate investment through a liquid and dividend-yielding vehicle.
Step-by-step explanation:
A Real Estate Investment Trust (REIT) is a type of investment business that primarily focuses on generating income through real estate assets. As an investment vehicle, REITs are required to comply with certain tax provisions to maintain their REIT status. Specifically, the Internal Revenue Service (IRS) mandates that a REIT must obtain at least 75% of its gross income from real estate-related sources such as rents from real property, interest on mortgages financing real property, or real estate sales.
REITs are a popular way for individual investors to participate in real estate ventures without having to directly buy, manage, or finance properties. This structure provides liquidity because shares of a REIT can be traded like stocks on major exchanges, and it also generally provides a stable income through dividends. However, a REIT must meet the income criteria from real estate to qualify for beneficial tax treatment, which includes the opportunity to deduct dividends paid to shareholders from its corporate taxable income.