Investing.com - Financial Markets Worldwide
Get 40% Off
Get 40% Off
🚨 Volatile Markets? Find Hidden Gems for Serious Outperformance
Find Stocks Now

Why REIT Investors Aren't Sweating The FIscal Cliff

ByJake Huneycutt
Published 11/26/2012, 06:37 PM
Updated 07/09/2023, 06:31 AM

The really bizarre thing about the fiscal cliff? It appears to benefit real estate investment trusts (REIT).

The special dividend tax rate will disappear if the fiscal cliff happens. That means that taxes on qualified dividends will increase from 15% to 43.8% if the fiscal cliff happens, whereas capital gains will be taxed at 23.8%. For this reason, many dividend-paying stocks will become tax disadvantaged.

Treated As 'Ordinary Income'
REITs, on the other hand, are taxed a bit differently. REITs pay large dividends, but they are exempt from corporate taxes. As a result of this, their dividends get taxed as ordinary income, rather than under the special dividend-tax rate. The top ordinary income tax rate will also increase, but only from 35% to 39.6%; a much smaller increase than the one for qualified dividends.

As a result, it would appear that some dividend investors have started shifting toward REITs and exiting other dividend-paying stocks, such as utilities.

If you don’t get it, don't sweat it. Just remember that as long as our tax code is ridiculously complex, only about 2% of the population will actually understand it.

Which is why as a nation we incur $435 billion in tax compliance costs every year (equal to about 3% of our economy). Talk about inefficiency! We could actually help solve some of our deficit woes merely by simplifying the tax code and freeing up some of that $435 billion for investment. Which is, by the way, one of the recommendations of the Simpson-Bowles Commission that has largely been ignored.

3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or remove ads .

Latest comments

Install Our App
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.