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American Capital Agency Corp. Message Board

  • rlp2451 rlp2451 Apr 24, 2013 9:07 PM Flag

    WSJ: Congress Looks at REIT Tax Exemptions

    A powerful congressional committee is examining the tax exemption that real-estate investment trusts have enjoyed for decades as part of its comprehensive review of the tax code.

    The House Ways and Means Committee has been re-examining the tax code looking for ways to boost economic growth by closing some loopholes, simplifying the code and reducing the tax burden on the middle class.

    The committee is looking at the REIT tax exemption along with all other tax rules.

    "Like all other aspects of the code, it is reasonable to expect that REITs would be included in any top-to-bottom review of the code," said a spokeswoman for the Ways and Means committee, whose chairman is Dave Camp, (R., Mich.). "The chairman has long made it clear that everything is on the table."

    Since they were established in 1960, REITs haven't had to pay corporate taxes on their income as long as at least 90% of their taxable income is paid as dividends. The tax savings from this exemption, which have allowed them to pay more in dividends, has been one of their main selling points.

    Industry officials and analysts say it is unlikely that REITs will lose their tax exemption because it doesn't result in a major loss of revenue to the Treasury. They point out that REIT dividends are taxed at a higher rate than other corporate dividends, 39.6% versus 20%.

    REITs paid $29 billion in dividends to shareholders in 2012, according to the National Association of Real Estate Investment Trusts. If the 195 REITs lost the tax exemption and dividends were taxed at the same lower rate as other corporations, the amount gained would largely be offset by the amount lost from the lower tax rate on dividends, industry officials say.

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    • A powerful congressional committee is examining the tax exemption that real-estate investment trusts have enjoyed for decades as part of its comprehensive review of the tax code.

      The House Ways and Means Committee has been re-examining the tax code looking for ways to boost economic growth by closing some loopholes, simplifying the code and reducing the tax burden on the middle class.

      The committee is looking at the REIT tax exemption along with all other tax rules.

      "Like all other aspects of the code, it is reasonable to expect that REITs would be included in any top-to-bottom review of the code," said a spokeswoman for the Ways and Means committee, whose chairman is Dave Camp, (R., Mich.). "The chairman has long made it clear that everything is on the table."

      Since they were established in 1960, REITs haven't had to pay corporate taxes on their income as long as at least 90% of their taxable income is paid as dividends. The tax savings from this exemption, which have allowed them to pay more in dividends, has been one of their main selling points.

      Industry officials and analysts say it is unlikely that REITs will lose their tax exemption because it doesn't result in a major loss of revenue to the Treasury. They point out that REIT dividends are taxed at a higher rate than other corporate dividends, 39.6% versus 20%.

      REITs paid $29 billion in dividends to shareholders in 2012, according to the National Association of Real Estate Investment Trusts. If the 195 REITs lost the tax exemption and dividends were taxed at the same lower rate as other corporations, the amount gained would largely be offset by the amount lost from the lower tax rate on dividends, industry officials say.

      Sentiment: Strong Sell

    • yourbestfriendintheworld yourbestfriendintheworld Apr 25, 2013 12:10 AM Flag

      They'll do away with the LT/ST tax break first. Then they'll take away the REIT exemption.

      Right now, someone in the top tax bracket is getting 60.4% of the fund's profits.
      If the exemption goes away but the qualified-div tax break doesn't, they'll get 52% of the profits.
      If both breaks are rescinded, they'll get 39.3% of the profits.

      So the government will get 39.6, 48, or 60.7% of REIT income, depending on how they decide this.

      Only the corporate tax (35% in this example) comes out of the yield (the investor was paying the rest out of his cut). So the yield of 15% would be reduced to 9.75% when the corporate tax goes from 0 to 35%.

      Still one of the best attractors in the market.

 
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