Tax Advantages of Public Nonlisted REITS
April 18, 2023 | J.P. Morgan Asset Management
The tax laws applicable to non-listed REITs may reduce, defer or eliminate taxes. We’ll explain each of the potential tax advantages and also provide some hypothetical examples of how they work together.
Understand the different types of REIT distributions and how they are taxed
REIT distributions can be categorized as ordinary income, capital gain or a return of capital (ROC). The tax treatment of each category is different and enables some of the tax efficiency of REITs.
Ordinary income is taxed at your regular personal income tax rate, which is typically higher than the rate for capital gain. However, REIT investors are currently benefitting from a 20% reduction in their individual tax rate for the ordinary income portion of REIT distributions, thanks to the Tax Cuts and Job Act (TCJA) of 2017. For example, if your tax rate is 37.0%, your effective tax rate for your ordinary REIT dividends would be 29.6%.
