US Study Highlights Tax Benefits Of REITS

by Mike Godfrey, Tax-News.com, Washington

20 April 2005

A new study by a property trust body has found that real estate investment trusts (REITS) may be more beneficial to the investor in terms of tax than is often thought.

While the 2003 tax cut package benefited many investors by cutting dividend tax to 15%, REIT dividends do not qualify as they pass most of their income directly to investors and therefore circumvent corporate taxation.

This has led many to look on the vehicles unfavourably in tax terms. However, according to new research from the National Association of Real Estate Investment Trusts, or Nareit, 37% of the REIT distributions paid to investors in 2004 represented income that is taxable at lower rates.

Furthermore, over half of that was taxable as capital gains, which qualifies for a 15% tax rate for most investors.

The remaining segment came mainly from other non-taxable distributions such as return of capital, which is taxed as capital gains at 15% when the shares are sold - provided that they have been held for longer than one year.

According to Nareit, the amount of distributions attributable to lower-tax-rate items has risen every year since 1998.

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