Under what condition do REITs avoid paying corporate taxes?

Real Estate Investment Trusts (REITs) are structured to avoid paying corporate income taxes by adhering to specific regulatory requirements set forth by tax laws. One of the key requirements is that REITs must distribute at least 90% of their taxable income to shareholders in the form of dividends. This mandatory distribution effectively allows REITs to bypass corporate taxes on the income they distribute, as taxation is typically applied at the corporate level before any distributions are made.

By paying significant distributions to investors, REITs can ensure that they meet this requirement, thereby avoiding corporate tax liabilities. This structure incentivizes REITs to generate income and return a substantial portion of it to their investors, fostering a benefit for both the trust and its shareholders.

Other conditions mentioned in the options, such as investing primarily in commercial properties, maintaining a diversified portfolio, or having no public listings, do not directly relate to the tax obligations of a REIT. While these factors might influence other operational or regulatory aspects, they do not impact the central tax exemption that hinges on the distribution of income.