SIE practice questionhardREITs
A REIT is considering reducing its annual distribution to 80% of taxable income. What would be the potential consequence?
- AIt would convert automatically to a closed-end fund.
- BIt would be required to pay penalties to investors.
- CIt would have to invest only in mortgage assets.
- DIt would fail to meet the REIT qualification and lose special tax treatment.✓ Correct answer
Explanation
Why D — It would fail to meet the REIT qualification and lose special tax treatment.
A REIT must pay at least 90% of taxable income to retain its favorable tax status. Lower distributions risk loss of REIT status and tax benefits. The other consequences are not accurate.
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