REIT Tax Treatment

What this video covers

• Why a REIT must distribute 90% or more of taxable income to avoid entity-level tax, and what happens to any retained income
• How the dividends-paid deduction eliminates double taxation, and why a REIT does not issue a K-1 or pass losses through to investors
• Why REIT distributions are taxed as ordinary income rather than qualified dividends, since the income was never taxed at the corporate level
• How non-cash depreciation expenses allow a REIT to distribute more cash than its taxable income
• What return of capital means: tax-deferred receipt that reduces cost basis, increasing the taxable gain upon sale
• Why return of capital is tax-deferred, not tax-free, and why the IRS collects its share eventually through the lower basis