What incentives are their for a company to become a REIT? In other words, how does a company like ProLogis benefit from identifying itself as a REIT vs a publicly traded company? Please explain. Thank you.
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Tax - The REIT is permitted to deduct dividends paid to shareholders from its taxable income
Because if you identify as a REIT then you get to use the REIT bathroom
Yeah, it's mostly tax reasons. A corporation has to pay the corporate income tax rate then the dividends paid are taxed at the individual shareholder's rate. REITs are required by law to pass through at least 90% of their taxable income to shareholders thereby avoiding double taxation.
A C corp does, but I would highly doubt most real estate companies aren't LLCs, or in fact multiple LLCs, at this point. No double taxation there.
Yeah, I think the explanation below by WahoowaCPA and followed up by me is the reason why private real estate companies/LLCs upREIT. My explanation above would be why corporate real estate companies may prefer to incorporate as a REIT rather than a C corp.
The main reason is to avoid double taxation to the shareholders. However, most REIT's are an upREIT structure with a partnership below. At a high level, this structure allows partners to contribute property into the partnership to avoid recognizing gain. Their interest in the partnership can later be transferred into REIT shares and sold.
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