Captive Real Estate Investment Trust

A real estate investment trust (REIT) that is controlled by a single company or investor and set up to own the real estate assets of the parent company for tax purposes. This tax mitigation strategy is generally used by large retailers and banks that have many storefronts or branches in numerous locations. There are two types of captive REITs: rental REITs, which are typically used by multi-state retailers, and mortgage REITs, which are used by large banks.

Captive REITs are an attempt to capitalize on the favorable tax treatment given to REITs. Rent for individual stores or branches is paid to the captive REIT by the parent company, which deducts them as a business expense, thereby reducing its taxable income. Another potential tax benefit for the parent company is through the dividends paid deduction (DPD) on dividends received from the captive REIT.