General Securities Representative (Series 7) Practice Exam

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What percentage of income must a Real Estate Investment Trust (REIT) generate from real estate properties?

50%
75%
90%
100%

The correct answer is: 75%

A Real Estate Investment Trust (REIT) must generate at least 75% of its income from real estate-related activities to qualify for tax-exempt status. This requirement ensures that REITs primarily focus on real estate investments, aligning with the concept of real estate as their central business activity. The income that counts towards this percentage includes rents from properties, interest on mortgages financing real estate, and gains from the sale of properties. By meeting this 75% income threshold, REITs can avoid paying corporate income tax, allowing them to distribute most of their income to shareholders in the form of dividends, which is a key characteristic that makes REITs attractive to investors. This distribution requirement also emphasizes the investment nature of REITs, reinforcing their role as a vehicle for investing in real estate markets. The other percentages mentioned do not align with the legal requirements for REITs; thus, it's crucial for potential investors and those involved in REIT operations to understand this 75% threshold as a fundamental aspect of their structure and tax treatment.