Qualified Real Estate Investment Trust

Real Estate Investment Trust In Detail

REITs vary in size significantly and can own portfolios of institutional quality properties worth hundreds of millions to many billions of dollars. Some of the advantages of investing in REITs can include diversification, professional management, transparent financial records , and potential liquidity. Frequently, REITs are listed and traded on stock exchanges, but there are other REITs which are private or non-traded.

Due to the large amount of properties which a typical REIT owns, investors can benefit from stable income generated by rents coming in each month from the underlying assets. Diversification can come from the properties being located in multiple parts of the country , having multiple tenants, and from owning various types of investment properties .

Although a REIT is not considered like-kind by the IRS for 1031 exchange purposes, an investor who owns an asset which a REIT wants to acquire can execute a 721 exchange . Section 721 of the Internal Revenue Code allows an investor to defer capital gains taxes and depreciation recapture when trading their property to a REIT in exchange for operating partnership units, which are then directly exchanged for shares of the REIT. However, it is not common for large REITs to make small, single-asset acquisitions, so your potential to perform a Section 721 Exchange may be very limited depending on what size and quality of real estate you own.

Insurance Segregated Fund Trust

This is a related segregated fund of a life insurer for life insurance policies and is considered to be an inter vivos trust. The fund’s property and income are considered to be the property and income of the trust, with the life insurer as the trustee.

Note

You have to file a separate T3 return and financial statements for each fund. If all the beneficiaries are fully registered plans, complete only the identification and certification areas of the T3 return and enclose the financial statements. If the beneficiaries are both registered and non-registered plans, report and allocate only the income that applies to the non-registered plans.

How To Buy And Sell Reits

You can invest in a publicly traded REIT, which is listed on a major stock exchange, by purchasing shares through a broker. You can purchase shares of a non-traded REIT through a broker that participates in the non-traded REITs offering. You can also purchase shares in a REIT mutual fund or REIT exchange-traded fund.

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Examples Of Qualified Real Estate Investment Trust In A Sentence

• The executive officers of the QSub are neither covered employees of the QSub nor of the publicly held corporation unless they meet the definition of covered employee in paragraphs and of this section with respect to the publicly held corporation, in which case they are covered employees for the taxable year of the publicly held corporation. Qualified real estate investment trust subsidiaries.

Joint Spousal Or Common

This is a trust created after 1999 by a settlor who was 65 years of age or older at the time the trust was created. The settlor and the settlor’s spouse or common-law partner are entitled to receive all the income that may arise from the trust before the later of their deaths. They are the only persons who can receive, or get the use of, any income or capital of the trust before the later of their deaths.

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Overview Of Qualified Investments

1.1 This section is intended to give the reader an overview of the qualified investment rules for RRSPs, RESPs, RRIFs, RDSPs, and TFSAs. It is not intended as a substitute for the more detailed and comprehensive discussion that follows it, which will be primarily of interest to financial institutions, brokerage firms, tax specialists and others who are involved in plan administration.

1.2 The qualified investment rules apply to registered plans that are set up as a trust. Trusteed plans that allow investors to choose a wide variety of investments are often referred to as self-directed plans. Trusteed plans also include plans that restrict investments to mutual funds and other investment products issued by the firm that administers the plan.

1.3 Registered plans that take the form of a deposit or insurance contract, such as a registered guaranteed investment certificate or registered annuity, are not subject to the qualified investment rules. The plan itself is the eligible investment.

1.4 The following are common types of qualified investments:

1.5 While the Act and Regulations set out the types of investments that are qualified investments, many firms have internal policies that further limit the types of qualified investments that may be held by the registered plans they administer. The legislation does not prohibit them from having such policies, which reflect the business decisions of the firm.

Tax Tips For Real Estate Investment Trusts

OVERVIEW

A real estate investment trust, or REIT, is essentially a mutual fund for real estate. As the name suggests, the trust invests in real estate related investments. Investors buy shares in the trust, and the REIT passes income from its holdings to those investors. Because real estate generates different kinds of cash flow, the income that investors receive from a REIT can fall into different categories, each with its own tax rules.

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What Qualifies As A Reit

Most REITs have a straightforward business model: The REIT leases space and collects rents on the properties, then distributes that income as dividends to shareholders. Mortgage REITs don’t own real estate, but finance real estate, instead. These REITs earn income from the interest on their investments.

To qualify as a REIT, a company must comply with certain provisions in the Internal Revenue Code . These requirements include to primarily own income-generating real estate for the long term and distribute income to shareholders. Specifically, a company must meet the following requirements to qualify as a REIT:

• Invest at least 75% of total assets in real estate, cash, or U.S. Treasuries
• Derive at least 75% of gross income from rents, interest on mortgages that finance real property, or real estate sales
• Pay a minimum of 90% of taxable income in the form of shareholder dividends each year
• Be an entity that’s taxable as a corporation
• Be managed by a board of directors or trustees
• Have at least 100 shareholders after its first year of existence
• Have no more than 50% of its shares held by five or fewer individuals

Today, it’s estimated that REITs collectively hold about $3.5 trillion in gross assets publicly traded equity REITs account for $2.5 trillion.

What Is A Reit

REIT rhymes with sweet stands for real estate investment trust, and its popularity is growing for investors who seek to expand their portfolio beyond publicly traded company stocks or mutual funds.

REITs are companies that own income-producing real estate, such as apartments, warehouses, self-storage facilities, malls and hotels. Their appeal is simple: The most reliable REITS have a track record for paying large and growing dividends. Still, that potential for growth carries risks that vary depending on the type of REIT.

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Reit Types By Investment Holdings

Equity REITs: Equity REITs operate like a landlord, and they handle all the management tasks you associate with owning a property. They own the underlying real estate, collect rent checks, provide upkeep and reinvest into the property.

Mortgage REITs: Unlike equity REITs, mortgage REITs don’t own the underlying property. Instead, they own debt securities backed by the property. For example, when a family takes out a mortgage on a house, this type of REIT might buy that mortgage from the original lender and collect the monthly payments over time, generating revenue through interest income. Meanwhile, someone else the family, in this example owns and operates the property.

Mortgage REITs are usually significantly more risky than their equity REIT cousins, and they tend to pay out higher dividends.

Hybrid REITs: Hybrid REITs are a combination of both equity and mortgage REITs. These businesses own and operate real estate properties as well as own commercial property mortgages in their portfolio. Be sure to read the REIT prospectus to understand its primary focus.

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How Do Reits Work

Congress created real estate investment trusts in 1960 as a way for individual investors to own equity stakes in large-scale real estate companies, just as they could own stakes in other businesses. This move made it easy for investors to buy and trade a diversified real-estate portfolio.

REITs are required to meet certain standards set by the IRS, including that they:

• Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs.

• Invest at least 75% of total assets in real estate or cash.

• Receive at least 75% of gross income from real estate, such as real property rents, interest on mortgages financing the real property or from sales of real estate.

• Have a minimum of 100 shareholders after the first year of existence.

• Have no more than 50% of shares held by five or fewer individuals during the last half of the taxable year.

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What Is A Qualified Personal Residence Trust

A qualified personal residence trust is a specific type of irrevocable trust that allows its creator to remove a personal home from their estate for the purpose of reducing the amount of gift tax that is incurred when transferring assets to a beneficiary.

Qualified personal residence trusts allow the owner of the residence to remain living on the property for a period of time with “retained interest” in the house once that period is over, the interest remaining is transferred to the beneficiaries as “remainder interest.”

Depending on the length of the trust, the value of the property during the retained interest period is calculated based on applicable federal rates that the Internal Revenue Service provides. Because the owner retains a fraction of the value, the gift value of the property is lower than its fair market value , thus lowering its incurred gift tax. This tax can also be lowered with a unified credit.

What Types Of Reits Are There

Many REITs are registered with the SEC and are publicly traded on a stock exchange. These are known as publicly traded REITs. Others may be registered with the SEC but are not publicly traded. These are known as non- traded REITs . This is one of the most important distinctions among the various kinds of REITs. Before investing in a REIT, you should understand whether or not it is publicly traded, and how this could affect the benefits and risks to you.

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What Are Qualified Dividends

A dividend is a distribution of a corporations earnings to its shareholders, and dividends can be either ordinary or qualified. Ordinary dividends are taxed at the state and federal income tax rates, and qualified dividends are taxed at 0%, 15%, or 20%, depending on an investors tax bracket.

According to the United States Internal Revenue Code, a dividend must:

• Have been paid by a U.S. corporation qualified foreign corporation
• Not be explicitly excluded from this category by the IRS
• Meet the required holding period

The holding period is defined as 60 days within a 121-day period at least 60 days before the ex-dividend date. The exception to this applies to preferred stock.

The category of qualified dividends first appeared in the Jobs and Growth Tax Relief Reconciliation Act of 2003. Before the passing of this act, there was no separation of dividends classes. All dividends were taxed at the same rate.

How Do I Qualify

To be eligible for a qualified dividend tax rate, you must have owned stock during the qualifying period, usually 60 days for common stock and 90 days for preferred stock.

If it is preferred stock, then the stockholder must have held it for more than 90 days in the last 181 days. This period starts 90 days before the stock goes ex-dividend. This will only apply where dividends are due for a period exceeding 367 days.

If the dividends fail to meet the criteria set out in the Code, tax is levied by considering the date the dividend was paid and the taxpayers ordinary income bracket. The portion of a REIT dividend classified as income may be eligible for preferential tax treatment.

The Tax Cuts and Jobs Act provides a 20% deduction for pass-through business income, including a qualified REIT dividend. However, this deduction will end in 2025.

Non-U.S. residents may be subject to a 30% withholding tax on their REIT income. However, exemption or a reduced rate may be applicable if there is a tax treaty between the U.S. and their country of residence.

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Are Reits Safe During A Recession

Investing in certain types of REITs, such as those that invest in hotel properties, is not a great choice during an economic downturn. Investing in other types of real estate such as healthcare facilities or retail is a great way to hedge against a recession. They have longer lease structures and thus are much less cyclical,

What Is A Real Estate Investment Trust

A real estate investment trust is a company that owns, operates, or finances income-generating real estate.

Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to earn dividends from real estate investmentswithout having to buy, manage, or finance any properties themselves.

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Real Estate Investment Trust

A trust is a REIT for a tax year, if it is resident in Canada throughout the year and meets a number of other conditions, including all of the following:

• at least 90% of the trusts non-portfolio properties must be qualified REIT properties
• at least 90% of the trusts gross REIT revenue for the tax year must be derived from rent, from real properties, interest, capital gains from dispositions of real properties which are capital properties, dispositions of eligible resale properties, dividends and royalties
• at least 75% of the trusts gross REIT revenues for the tax year must be derived from rent from real properties, interest from mortgages on real properties and capital gains from dispositions of real properties which are capital properties

Real Estate Investment Trusts : What They Are And How To Invest In Them

A REIT , or real estate investment trust, is an entity that holds a portfolio of commercial real estate or real estate loans. Congress created REITs in 1960 to provide all investors, especially small investors, with access to income-producing commercial real estate. REITs combine the best features of real estate and stock investment.

This guide will walk you through everything you need to know about real estate investing through REITs, including the types of REITs, REIT pros and cons, how to invest in REITs, and what qualifies a company as a REIT.

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How To Invest In Real Estate Investment Trusts

Like popular public stock, investors may decide to buy shares in a particular REIT that is enlisted on the major stock exchanges. They may do so in the following three ways.

• Exchange-traded funds: With this particular investment option, investors would avail indirect ownership of properties, and would further benefit from its diversification.

Notably, REIT as an investment option tends to resemble mutual funds, the only difference being that REIT holds properties instead of bonds or stock options. Additionally, REIT investors are entitled to avail the assistance of financial advisors to make more informed decisions in terms of investing in an appropriate REIT option.