What percentage of income must REITs generate from investing in real property?

Real Estate Investment Trusts (REITs) must generate a minimum of 75% of their gross income from real estate-related activities to maintain their tax-efficient status. This requirement is in place to ensure that the majority of a REIT's income comes from its core business of investing in real property. By focusing on this threshold, the regulations help to define the investment purpose of REITs and enforce their commitment to the real estate sector.

The 75% income requirement is a key part of the IRS regulations that allows REITs to benefit from special tax treatment, enabling them to avoid corporate income tax by distributing at least 90% of their taxable income to shareholders as dividends. This structure is designed to encourage investment in real estate while providing investors with income through dividends. Understanding this percentage is essential for anyone studying the operational and regulatory framework governing REITs.