How are REIT dividends tax-advantaged?
################################################################################ Depends on what you mean. First of all, unlike non-REITs, dividends paid out by REITs are not taxable to the REIT itself (that is, they are subtracted from taxable income). REITs must pay out at least 90% of taxable income. That’s the lower limit; REITs may (& usually do) pay out more than that, including more than the total taxable income. When that happens, part of the dividend is considered “return of capital” (ROC), which is not taxable income to the recipient (you). Instead, it lowers your basis in the REIT. Thus, the ROC portion of a dividend (if any) is tax-deferred until you sell the REIT, and will then be taxed at the capital gains rate (short or long, depending on how long you held the REIT). (If your basis in a REIT is lowered to zero, further ROC dividends are taxable in the year received, at the rate applicable to a sale of that REIT.) For a more detailed discussion of ROC, see: http://boards.
