SIE (Securities Industry Essentials) Practice Exam

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How can a REIT avoid being taxed as a corporation?

Investing 75% or more in stocks and bonds
Receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders
Investing directly in gold and silver
None of the above

The correct answer is: Receiving 75% or more of its income from real estate and distributing 90% or more of its net investment income to its shareholders

A REIT, or real estate investment trust, can avoid being taxed as a corporation by meeting certain criteria. Option A is incorrect because REITs are required to invest at least 75% of their assets in real estate-related assets, not stocks and bonds. Option C is incorrect because gold and silver are not considered real estate assets. Option D is incorrect because REITs must meet specific requirements in order to qualify for tax exemption as a corporation, and simply choosing none of the options would not fulfill those requirements.