TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, August 30, 2012

Treating REIT Investors Like LLC/LLP Investors

Carson Siemann (J.D. 2012, Seton Hall), Promoting Equity for REIT Investors, 36 Seton Hall Legis. J. 271 (2012):

This Article proposes that Congress should amend subchapter M of Chapter 1 of the Internal Revenue Code to make the basis limitations to REIT investors more similar to that of investors in limited liability partnerships or limited liability corporations (“LLCs”). This would promote more fairness in the tax system, and encourage more individuals to invest in REITs, rather than more leveraged alternative real estate purchase structures. Part II of this Article outlines the tax structure of a REIT and what is required of an entity in order to qualify as one for tax purposes. Part III discusses the legislative history of REITs and what purpose they were meant to serve. Part IV discusses why REITs do not fully accomplish their intended purpose. Part V details the disastrous consequences of over-investment in real estate, which occurred, at least in part, due to excessive debt-financing. Part VI offers proposed legislative changes that would further encourage individual investors of modest means to take greater advantage of the tax and diversification benefits of real estate through REITs.

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