Show #298 Airing Sunday 5/22/05
Is real estate a real good investment? There may be some real tax advantages. Here to give us the real facts is the really smart Tony Mercuri from Ta-Check Tax Service.
Question: Let’s start at the beginning. What is a REIT?
Answer: A REIT is a Real Estate Investment Trust. This is an investment company that purchases various real estate investments.
Much like a mutual funds that buys different stocks, REITs simply buy real estate: buildings, shopping malls, resorts—there are all different types.
Question: Now, there are different kinds of REITs, correct?
Answer: That is correct. There are publicly traded REITs as well as what they call Non-Traded REITs.
Non-traded REITs are more stable. They do not experience daily price changes as they are not traded on an exchange. These Non-Traded REITs have become more and more popular due to the fact the good ones are paying much higher yields then CDs and bonds, they are more stable then publicly traded REITs, have remained very stable, and have tax advantages. We are going to focus on the Non-Traded REITs.
Question: What is the tax advantage of a REIT?
Answer: REITs pay a dividend (usually monthly), and you can receive that dividend as cash or re-invest it. On this dividend, only about 70% of it is taxable to you as dividend income. Since this dividend is derived from real estate, it has the non-cash nature of depreciation expense which provides this tax-deferred return of capital.
Additionally, REITs are required to pay out no less then 90% of their taxable income. This is a great advantage to many, since other rates are so low not only are these dividend rates higher, but a portion is not taxed.
Question: What if you sell a REIT? Is it taxed then?
Answer: It may, depending on the performance you may have a capital gain and like all other investments if you have a gain, you would be required to pay a capital gain tax.
Answer: Yes. When and if you sell, you may pick up the 30% at that time. But it’s taxed as a capital gain, which again is at the lowest rate.
Is a REIT right for you? Can it help your tax situation? Do you have questions. Give Tony a call, REIT away.
