What do REITs pass through to investors?

Real Estate Investment Trusts (REITs) are structured to pass through a significant portion of their income to their investors in the form of dividends. This is primarily due to the requirement under the IRS rules for REITs, which stipulates that they must distribute at least 90% of their taxable income to shareholders to qualify for special tax considerations. This means that investors receive the income generated from the REIT’s investments in real estate properties or mortgages.

While investors are entitled to receive this income as dividends, they typically do not direct receive losses incurred by the REIT. In practice, losses from property depreciation or other operational losses are reflected in the earnings calculations for the REIT but do not directly pass through to the investors in a way that could offset other personal income.

Thus, the assertion that REITs pass through income but not losses is accurate, and it aligns with the tax treatment of these investment vehicles. Investors benefit from the income that REITs generate, while losses are retained at the trust level, not directly affecting the individual investors’ tax situations.