Which characteristics are true of Real Estate Investment Trusts (REITs)?

The correct choice highlights that Real Estate Investment Trusts (REITs) offer the opportunity for capital gains. This is a fundamental characteristic of REITs as they invest in income-producing real estate and can generate returns in two primary ways: through regular income distributions and through potential appreciation of the properties held within the trust. When the value of the properties owned by the REIT increases, investors stand to benefit from capital appreciation, which can enhance their overall investment returns.

The potential for capital gains arises from the real estate market’s performance. As property values rise due to market demand, improvements, and other economic factors, REITs can realize gains when properties are sold, contributing to increased share value for investors. This unique aspect of REITs makes them an attractive investment for those seeking exposure to real estate without the need to directly own property.

In the context of other options, while REITs do pay out 90% of their investment income to qualify for tax benefits, the focus on capital gains is a more direct reflection of the investment's growth potential. Options regarding depletion allowances and pass-throughs of losses do not apply to REITs, as they have different tax and investment structures compared to other types of real estate investments.