What is the primary tax advantage of a REIT?

The primary tax advantage of a REIT stems from its unique structure and tax treatment, which allows it to avoid taxation at the corporate level. This benefit occurs as long as the REIT distributes at least 90% of its taxable income to shareholders in the form of dividends. By doing so, the REIT effectively passes its income through to its investors, allowing those investors to pay taxes on the income instead, which aligns with the idea of pass-through entities.

This distribution requirement incentivizes REITs to manage their income in a way that maximizes shareholder returns, thereby promoting investment in the real estate sector. The advantage of avoiding corporate tax on the income generated provides REITs with a competitive edge in attracting investors, as they can provide higher yields compared to traditional corporations subjected to double taxation, where both corporate income and shareholder dividends are taxed.

The other options present potential misconceptions. While it may seem appealing to consider tax credits or exemptions from property taxes, those do not represent the primary structural benefit that directly influences the REIT's operations and investor returns. Therefore, the distribution of 90% of taxable income remains the defining characteristic that exemplifies the tax advantage of a REIT.