The new U.S. tax law legislation could be a boon for real estate investment trusts and REITs-related exchange traded funds as they will foot a smaller tax bill on dividends under the new plan.
The new tax plan comes with a deduction for pass-through businesses or income derived from commercial activities that their owners or shareholders pay on persona income taxes, reports Esther Fung for the Wall Street Journal.
This deduction for pass-through businesses also covers the income that flows to REIT investors through dividends as rent or mortgage payments are translated into shareholder dividend payouts.
The new plan allows investors to deduct 20% of income with the remainder of the income taxed at the investor’s marginal rate, and it is available even if one does not itemize the deductions. Consequently, REITs investors who use to pay the top income-tax rate of 39.6% on dividends received will now see that rate dip to 29.6%, according to NAREIT, the National Association of Real Estate Investment Trusts.
“Clearly this is a deduction that will lower the overall tax rate for individuals who invest in REITs,” Dianne Umberger, the REIT leader for Ernst & Young’s National Tax Department, told the WSJ.