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Why are REITs worth holding on to if the new tax law has changed how interest rates are calculated?

By Matt McCallJan 18, 2018


The primary impact of the new tax law is that investors will pay less taxes on the dividends generated from them since it is considered pass-through business income. Investors are allowed to deduct 20% of their income and the remainder is filed at the taxpayer’s marginal rate, even if the filer does not itemize deductions.

According to industry leader Nareit, REIT shareholders who are in the highest tax bracket now pay 39.6% on dividends and that would drop to 29.6%. And Ernst and Young’s National Tax Department has said that “this is a deduction that will lower the overall tax rate for individuals who invest in REITs.” On top of that, investors who have rental income outside of REITs could be subject to taxes at the highest rate of 37%, but only 29.6% through a REIT.

None of this changes our strategy with any REIT positions, so I feel comfortable having exposure to this sector.

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