Author Topic: Taxes on REIT distributions  (Read 1771 times)

tskzes

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Taxes on REIT distributions
« on: August 28, 2014, 10:38:08 AM »
I own some ARCP stock which is an REIT and my income does not surpass the 15% income tax bracket. Are the monthly distributions from this stock considered dividends by the tax law?

Secondly, if these are considered dividends and I have held the stock for more than 61 days prior to the ex-dividend date are these considered qualified dividends for which if I am in the 15% tax rate bracket then I pay 0% income tax on these qualified dividends as shown on the wikipedia qualified dividend page.

I am mainly asking because I have heard a few times on this forum that it is bad to have REIT's in a taxable account and when I found this information about zero taxation for qualified dividends in the lower tax brackets it made me wonder about it and maybe if the best allocation strategy might be different for someone in a high tax bracket rather than a lower tax bracket.
« Last Edit: August 28, 2014, 10:50:08 AM by tskzes »

Cheddar Stacker

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Re: Taxes on REIT distributions
« Reply #1 on: August 28, 2014, 11:38:18 AM »
Dividends from REITs can't be Qualified Dividends. They are automatically non-qualified Dividends and taxable at ordinary rates. It's an unfortunate drawback to this type of investing. But, when you consider that the underlying investment is rental real estate, it should be taxed as such. If you own rental real estate personally, the profits are taxed at ordinary rates.

It's best to hold your REIT funds in tax deferred accounts for this reason.

kyleaaa

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Re: Taxes on REIT distributions
« Reply #2 on: August 28, 2014, 02:00:28 PM »
REIT dividends are never qualified; however, sometimes part of the dividend may be qualified as "return of capital" for tax purposes, which means it isn't taxable in the year received. This is true for taxpayers in high tax brackets too, though. Caveat: return of capital distributions lower your cost basis, so you'll owe capital gains tax on the amount when you sell.

Franklin

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Re: Taxes on REIT distributions
« Reply #3 on: August 28, 2014, 02:07:00 PM »
Quote
It's best to hold your REIT funds in tax deferred accounts for this reason.

Agree with Cheddar.  But a REIT in a Roth IRA is even better, because you will never pay taxes on the dividends even after you withdraw.