What percentage of income must REITs distribute to shareholders each year?

Real Estate Investment Trusts (REITs) are required by law to distribute a significant portion of their taxable income to shareholders as dividends to maintain their favorable tax treatment. Specifically, to qualify as a REIT, a company must distribute at least 90% of its taxable income to its shareholders annually. This distribution requirement differentiates REITs from other corporations, which can retain earnings.

By adhering to this 90% distribution rule, REITs avoid federal income tax at the corporate level, allowing them to pass the tax benefits onto their shareholders. This strategy also makes investments in REITs attractive to income-focused investors seeking regular dividend payments. The other options do not reflect the legal requirement for REITs and therefore do not correctly capture the intended structure and distribution mandate of these investment vehicles.