The Taxman Cometh: REIT Tax Myths
With tax season (unfortunately) upon us, we address some of the most common questions and respond to some of the outright myths that we hear related to REITs and taxes.
Functionally, from a tax reporting perspective, an investor’s experience with REITs shouldn’t be any different than a typical dividend-paying stock. REITs report using the standard 1099-DIV, not a K-1.
REIT investors were big winners from recent tax reform. Due to the new 20% QBI deduction, REITs are now essentially on par with typical qualified-dividend-paying companies when held in taxable accounts.
REIT investors got another win last year. The IRS amended an initially ambiguous regulation to allow ETFs and other REIT-owning funds to pass-through the QBI deduction to their shareholders.
At the company level, REITs are able to retain significantly more capital than is commonly believed, which has been a primary source of their under-appreciated historical record of strong growth.