Liquidating distribution reit

17-Apr-2020 14:35 by 5 Comments

Liquidating distribution reit

Talk with a financial planner, tax advisor, and/or do your own research before making such a decision. This is tricky, at times, because the after-tax yields depend on the breakdown of the REIT distributions.Even so, it's important to keep in mind that taxes reduce the yield on REITs.

A REIT that seems like the best investment pre-tax may become a less attractive investment after-tax. Many investors fail to realize that REITs are subject to interest rate risk (with the interest rate risk of mortgage REITs being particularly acute).

(WPC), Liberty Property Trust (LRY) and others offer many advantages, such as a steady income stream, which I won't rehash here.

The Taxation of REIT Distributions REITs invest in real estate (and mortgages, in some instances) and make distributions to unit holders.

Investors can minimize this risk by holding other investments that have less interest rate exposure.

There are many ways to diversify the interest rate risk posed by REITs; cash, SHY, individual dividend-paying stocks, or an index fund such as VTI are merely a few options.

A unit holder faces a slate of three possible tax treatments on these distributions: (1) ordinary income, (2) long-term capital gains, and (3) return of capital ("ROC").

Each distribution is not necessarily taxed in its entirety as ROC; rather, a single distribution may consist partly of return of capital, partly of ordinary income, and partly of capital gains.Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.While REITs, on average, tend to make distributions that predominantly receive ordinary income treatment, certain years may witness distributions with return of capital or capital gains making up an uncharacteristically large portion of the distributions. Because REIT distributions (1) tend to be taxed predominantly at ordinary income levels and because (2) REITs must distribute the vast majority of their taxable income to maintain their REIT status, REITs are quite inefficient from a tax standpoint.REITs can become even tax inefficient at the state level.What determines the breakdown of each distribution?

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