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Unless there is something I'm not understanding here, the income isn't tax free. It's just taxed at the individual rather than corporate level.

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It's tax free for the REIT. If it were a C corp, it'd have to pay tax on earnings, and the shareholders would also have to pay tax on dividends. So for the REIT there's a meaningful sense in which "tax-free" applies.

IANAAmerican, but would that change where the tax goes? Would that mean the city receives less tax that would help the poor that are the ones at the centre of it? I'm honestly curious, I don't know enough about how US tax works.

As someone else pointed out, property tax is entirely different and does not fall under the category of "federal tax" (it's actually at the county level with city level additions). EPA is getting property tax.

If they were a normal real estate company (not an REIT) and they were based in Palo Alto with properties in East Palo Alto, East Palo Alto still wouldn't see a dime of any non-property tax.

No, probably not. There are both corporate and individual taxes at both the federal and state level.

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