TAILIEUCHUNG - FREQUENTLY ASKED QUESTIONS ABOUT REAL ESTATE INVESTMENT TRUSTS

In view of risks described and the generally rather complex trends of the relevant markets, a well-informed investor is a prerequisite for an investment in real assets. For example, the selection and management of a real asset portfolio necessitates extensive knowledge of the markets concerned and, in some circumstances, operative capabilities. From the investor’s point of view, lack of expertise is often a barrier to the choice of appropriate investments. In this respect, investors’ experience with specific investment vehicles and knowledge of the relevant products also play a part. The expertise of the asset manager is of major importance in. | FREQUENTLY ASKED QUESTIONS ABOUT REAL ESTATE INVESTMENT TRUSTS REIT Basics What is a REIT The term REIT refers to a real estate investment trust as set forth in subchapter M of chapter 1 of the Internal Revenue Code of 1986 the Code . An entity that qualifies as a REIT under the Code is entitled to preferential tax treatment. It is a pass-through entity that can avoid most entity-level federal tax by complying with detailed restrictions on its ownership structure and operations. REIT shareholders are taxed on dividends received from a REIT. See Tax Matters below for more detail. When and why were REITs created Congress passed the original REIT legislation in 1960 in order to provide a tax-preferred method by which average investors could invest in a professionally managed portfolio of real estate assets. Many of the limitations imposed upon the operation of REITs and the taxes to which they are potentially subject are perhaps best understood in terms of the original notion that the activities of REITs were to consist predominantly of passive investments in real estate. What are the required elements for forming a REIT In order to qualify for the tax benefits available to a REIT under the Code the qualifying entity must Have centralized management Code Section 856 a 1 Have transferable shares Code Section 856 a 2 Be a domestic corporation for federal tax purposes Code Section 856 a 3 Not be a financial institution or insurance company Code Section 856 a 4 Have shares beneficially owned by at least 100 persons Code Section 856 a 5 Not be closely held Code Section 856 a 6 Satisfy annual income and assets tests Code Section 856 a 7 Satisfy annual distribution and earnings and profits requirements Code Section 857 a Code Sections 561 through 565 Make a REIT election Code Section 856 c 1 and Have a calendar year tax year Code Section 859 . What are the required elements for maintaining REIT status An entity that wishes to maintain its status as a REIT must satisfy the .

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