USA - TEXAS Law and Practice Contributed by: Brad Holdbrook, Mary Mendoza, Michael Coleman and James Barnett, Haynes and Boone, LLP
that can be sold, transferred, or bequeathed to heirs. Each tenant in common can independently control their share of the property without the need for consent from the other owners, subject to any agreements made among the co-own - ers. Income and expenses from the property are reported based on each owner’s respective share. If the property generates rental income, each co-owner reports their share of the income on their personal tax returns. DSTs DSTs are separate legal entities created as a trust under Delaware statutory law, which allows for fractional ownership of property by inves - tors. DSTs are treated as grantor trusts for tax purposes, meaning the DST itself is not taxed. Instead, all income and deductions flow through to the investors, who report these on their indi - vidual tax returns. DSTs are often used in 1031 exchanges because they qualify as like-kind property. This allows investors to defer capital gains taxes by reinvesting the proceeds from the sale of a property into a DST. Condominiums Condominiums involve ownership of a specific unit within a larger property. The owner has title to the interior space of the unit but not to the land or common areas, which are owned col - lectively with the other condo owners. Condo - minium owners pay property taxes on their indi - vidual unit(s) and will typically also pay a fee to any homeowner’s association formed to manage the larger property. 5.3 REITs REITs are recognised in Texas as a popular investment vehicle, offering both public and private forms. These vehicles are accessible to foreign investors and provide a structured way to invest in real estate assets without directly man -
aging properties. REITs in Texas, like elsewhere in the United States, must adhere to specific federal tax requirements to qualify and maintain their REIT status, including being organised as a corporation, trust, or association, and meet - ing income distribution and asset investment thresholds related to real estate. The benefits of REIT status include significant tax advantages, as a qualifying REIT can deduct dividends paid to its shareholders, potentially avoiding corpo - rate tax. This allows REITs to attract both tax- exempt and foreign investors. 5.4 Minimum Capital Requirement In Texas, the minimum capital required to set up each type of entity used for real estate invest - ment varies depending on the specific entity structure chosen. For instance, the formation of a corporation, LLC, or partnership does not have a specified minimum capital requirement by law. 5.5 Applicable Governance Requirements Entities used for Texas real estate investment, including without limitation general partnerships and limited partnerships, need to comply with governance requirements as stipulated in the Texas Business Organizations Code, in addition to federal specifications. 5.6 Annual Entity Maintenance and Accounting Compliance Operating both domestic and foreign, or out- of-state, entities in Texas for the purpose of investing in real estate involves various account - ing and compliance costs. Each taxable entity formed or organised in Texas or doing business in the state is subject to the franchise tax. Tax rates vary based on entity type and income, and entities below a certain income threshold need not pay the franchise tax but still must file a “no tax due” report. Entities organised in Texas must
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