Taxation of REITs
Real Estate Investment Trusts (REITs) were created by the 1960 REIT Act, which provided a special taxation category, deemed “REIT status,” that grants qualified firms an exemption from corporate income taxes if they satisfy the required elements for being a REIT.
The intent of the law was to allow smaller investors access to real estate investments without having to make large investments in private partnerships. The exemption meant distributions of profits were not subject to double taxation, as is the case with dividends paid by many traditional corporations.
Most non-traded REITs intend to, and do, qualify for REIT status and so provide tax benefits to their investors.