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  • nellgwyn nellgwyn Dec 8, 2002 12:03 PM Flag

    Proposed tax break for dividends

    If Bush gives the tax break to individual taxpayers, it will be tremendous for reits, but if he gives it to the corporation, it probably will be bad for reits because it would reduce relative value of the reits' tax advantage. Supposedly, the former is more likely

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    • I think the proposed tax break for dividends will be good for investors and good for the country, but I do not think it will help REITs or their shareholders. Congress will not enact legislation that will allow income to be earned (by a REIT, an S-corp., a partnership, etc) but never taxed. A tax break for C-corp dividends (to avoid the double taxation: i.e. the corp pays the tax on its income and then the shareholder pays the tax on the dividends distributed, income already taxed once) should have little direct impact on REITs or their dividends.

      One might expect REIT's relative values to slightly decline over the long term as some money may be invested in divdend paying corporations that would have otherwise been invested in a REIT but for the new tax treatment. I doubt this it will have much negative impact on ETT as I still believe ETT is undervalued given the amount of ETT's $.64 dividend that under existing tax laws will be received tax free. Plus, it looks like future increases in the dividend (until real estate holdings begin to be fully depreciated on the books) will be tax free as a return of capital. ETT has many built in tax advantages under existing laws which may be easily overlooked. But I guess we will all have to wait and see what legislation finally passes.