I believe 100% of the 2014 dividends from NRF, both pre and post spin, will be tax deferred return of capital.
I expect only one dividend in Nov from NSAM, and that will be taxable as a qualified dividend since it will come from a C corp with taxable income.
2013 nrf taxable income was only a little better than 16% of preferred dividends paid, way short of any being taxable to common. I attribute this to increased depreciation coming from equity reit investments made in 2012 and 2013.
For 2014, we will have about a half year or a little more of depreciation on 1 billion of healthcare properties about to be acquired.
A half year of NSAM's taxable income will not be on NRF's 2014 consolidated tax return.
The tax loss on buying these exchangeable notes, financed with debt due in September will be about 308 million.
How the new debt gets refinanced, I don't know. I do know it will produce a huge loss, real and taxable.
Thus, I expect NO nrf 2014 dividends will be taxable, including preferred dividends. I expect they will have a net operating loss carryforward to 2015, but don't know how much. It should be disclosed in 10-K.
Maybe NRF will admit an expected tax loss for 2014 at a CC if asked. To date they have refused to estimate in advance the expected taxability of dividends.
So, I just transferred 3,000 shares of NRF to a brand new, otherwise empty, Roth IRA from my regular IRA. If I do not revoke the Roth conversion, in part or in full, I will pay a tax on today's NRF value. After I know what my taxable income will be for 2014, if it is too high, I just undo as much of the Roth conversion as I want AND I have until Oct 15, 2015 to make my decision.
So now I don't care if I won't know what the tax status of nrf dividends is until next Feb because I have the ability to choose how much, if any, of this Roth conversion I want to pay tax on in 2014.
Good analysis....I will be happy indeed if what you say comes to pass!
I'll be transferring some of my IRA into a Roth also later in the year. For some reason, I just assumed it had to be cash holdings. But you're saying you actually transferred shares from one to the other? I guess that makes sense, just never thought of the process quite that way. I assumed I would have to sell a security to get to cash first and then transfer the cash.
Yes, you can withdraw securities from an IRA but that does not change the taxability. You are taxed on the fair market value of the securities. Fidelity used the closing price. I think they should have used the average of the high and low instead of the closing, but I pick my fights and this ain't one of them.
It was all done inside Fidelity where I already had a Roth. I created a new Roth online (to keep the conversion separate), then made a call and instructed them to transfer 3,000 shares of nrf from my regular IRA to the new Roth IRA and to take the transfer out of the lot I bought on 2/27. It was done within 15 minutes. Debit one account, credit the new account.
Suppose in the spring of 2015 after I have a good idea of what my agi and taxable income will be for 2014 I decide I want to pay 2014 tax on 1,000 of the nrf shares (now 500 nrf and 500 nsam). I simply create another new Roth account (Roth #3) and transfer to it only the shares I want to pay tax on. Then I simply revoke the Roth conversion on Roth #2, which thereby becomes a regular IRA. Since I don't need two regular IRAs at Fidelity, I instruct them to merge what was Roth 2 (now a regular IRA) into my big IRA. I then pay tax on what eventually ended up in Roth 3. Since I don't need two Roths at Fidelity, I instruct Fidelity to merge Roth 3 into Roth 1. It's all done over the phone within a few minutes.
BTW, I did it NOW with NRF because I expect the value will be much higher post spin. 3,000 NRF at 15.86 = 47,580 potential taxable income (or not at my election). Suppose in November the combined is worth 23 per share which = 69,000. I can pay tax on 47,580 to have 69,000 of tax free value in a Roth.....a no-brainer.
On the other hand, if I sell NRF and buy Tesla which is worth 12,000 in Sep 2015, I revoke the entire Roth conversion. Why pay tax on 47,580 to have 12,000 in a Roth? That's just stupid.
There are very few of these "pick and choose with hindsight" opportunities in the IRS code.