Investing in REITS and Special Tax Considerations

How to invest in a REIT:

As with any investment, you should take into account your own financial situation, consult your financial adviser, and perform thorough research before making any investment decisions concerning REITs. You can review a REIT’s disclosure filings, including annual and quarterly reports and any offering prospectus at sec.gov. You can invest in a publicly traded REIT, which is listed on a major stock exchange, by purchasing shares through a broker (as you would other publicly traded securities). Generally, you can purchase the common stock, preferred stock, or debt securities of a publicly traded REIT. You can purchase shares of a non-traded REIT through a broker that has been engaged to participate in the non-traded REIT’s offering. You can also purchase shares in a REIT mutual fund (either an index fund or actively managed fund) or REIT exchange-traded fund.

Special Tax Considerations:

The shareholders of a REIT are responsible for paying taxes on the dividends that they receive and on any capital gains associated with their investment in the REIT. Dividends paid by REITs generally are treated as ordinary income and are not entitled to the reduced tax rates on other types of corporate dividends. For this reason, some investors prefer to own shares of a REIT or REIT fund inside a tax-deferred account (such as a retirement account) in order to defer paying taxes on the dividends received and any capital gains incurred from that REIT until they start withdrawing money from the tax-deferred account. Finally, a REIT is not a pass-through entity. This means that, unlike a partnership, a REIT cannot pass any tax losses through to its investors. Consider consulting your tax adviser before investing in REITs.

Please keep in mind that this information is being provided for educational purposes only. Thus, it is not designed to be complete in all material respects. Consequently, it should not be relied upon as legal or investment advice. If you have any questions concerning the contents of this post, please make sure that you consult a qualified professional.