REIT’s stable in the face of potential change in the Tax Code

by Laura Ehrenberg-Chesler on August 10, 2012

in Investment Strategies,taxes

Real Estate Investment Trusts (REIT’s) are corporations engaged mainly in owning and operating real estate.  As long as the REIT distributes at least 90% of its earnings, they do not pay any corporate income tax on the earnings.

However, the shareholders of those REIT’s do pay ordinary income taxes on those distributions.  So the irony is that, should the tax law for dividend distributions go from 15% to a top rate of 43%, REIT’s will likely not see much disruption in their shareholder base due to tax code changes.  REIT shareholders  are already accustomed to being taxed at their regular income tax rate.

This may turn out to be an unlikely advantage that increases the stability in the share price of many REIT’s.

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