REITs - 20% Qualified Income Deduction

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abuss368
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REITs - 20% Qualified Income Deduction

Post by abuss368 » Wed Jul 04, 2018 4:28 pm

Bogleheads -

As the IRS regs will be written for the new tax code I have read conflicting reports regarding the 20% income deduction related to REIT dividends.

My questions:

1) Is this deduction available for REITs (in a taxable account of course)?

2) If the 20% deduction is available for REITs, is the deduction for individual REITs only (and not REIT mutual funds) or both?

3) I understand the deduction, if allowed, is only for U.S. REITs and not International REITs.

As a side note, please refrain, if possible, from discussions regarding REITs in taxable or tax advantaged.

Thanks!
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 » Wed Jul 04, 2018 8:58 pm

I am not surprised by no responses thus far as I believe this may be unheard of with the tax act. Highly complex.
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Re: REITs - 20% Qualified Income Deduction

Post by not4me » Thu Jul 05, 2018 12:47 pm

You are right about the complexity. I do not have the definitive answers nor do I think anyone can at this point. Too early to know. But I have a broad understanding that shapes my thinking & so thought I'd share that & maybe give the thread a bump.

I believe what you are referencing is connected to the changes made in corporate taxes; in particular, "pass-thru entities" (not sure of the official, technical term). Because the permanent corporate tax changes have to interact with the "temporary" individual tax rates, this caused a potential situation where income might be passed-thru from a corporation to an individual & actually increase the tax rate (that is, where the individual rate was higher than the top corporate rate). To mitigate that, a deduction will be applied in some cases, depending upon the corporate structure (S-type corp, LLC, etc), type of activity, some threshold levels, etc

Assuming that understanding is correct, I think the answer will be "it depends" -- for some reits & some distributions it will apply & some may not. Since that tax law would not directly apply to reits housed outside the US, I would not expect it to affect them. (Tax changes in one country MAY affect taxes in another country, so there may be some indirect affects). I don't pretend to know if US companies holding property outside the US would have some revenue affected or not.

I would not expect the nature of the distribution to change based on whether it is owned directly or thru a mutual fund or etf.

Just my best 'guess' at this point

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Re: REITs - 20% Qualified Income Deduction

Post by FactualFran » Thu Jul 05, 2018 2:01 pm

It was discussed to some extent in the "IRS publishes draft 2018 1040 - Huge changes made" topic, starting at about the viewtopic.php?f=2&t=252565&p=4000292#p3995923 post.

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Thu Jul 05, 2018 4:21 pm

The 20% deduction applies to individual reits held in taxable accounts only. not to reit mutual funds held in taxable accounts. Some threads on this, will try to link when I can
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Re: REITs - 20% Qualified Income Deduction

Post by jtravisdavid » Thu Jul 05, 2018 6:51 pm

A further question I have on the REIT dividend deduction that I can’t get a clear answer on: Is the deduction subject to any sort of phase out at a certain income level?

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Re: REITs - 20% Qualified Income Deduction

Post by jebmke » Thu Jul 05, 2018 8:07 pm

jtravisdavid wrote:
Thu Jul 05, 2018 6:51 pm
A further question I have on the REIT dividend deduction that I can’t get a clear answer on: Is the deduction subject to any sort of phase out at a certain income level?
I believe there is a high income phase out.

This is one of the better write ups (fairly early so there may have been better ones since) but it does not address the individual REIT vs. REIT fund issue. My understanding is that REIT funds do not qualify for the QBI deduction but I don't recall where I read that.

https://www.kitces.com/blog/pass-throug ... bi-limits/
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Fri Jul 06, 2018 7:00 am

jebmke wrote:
Thu Jul 05, 2018 8:07 pm
jtravisdavid wrote:
Thu Jul 05, 2018 6:51 pm
A further question I have on the REIT dividend deduction that I can’t get a clear answer on: Is the deduction subject to any sort of phase out at a certain income level?
I believe there is a high income phase out.

This is one of the better write ups (fairly early so there may have been better ones since) but it does not address the individual REIT vs. REIT fund issue. My understanding is that REIT funds do not qualify for the QBI deduction but I don't recall where I read that.

https://www.kitces.com/blog/pass-throug ... bi-limits/
There is NO high income phase out. Ie everybody gets the 20% deduction on reit dividends in taxable accounts if you hold individual reits.

Will try to post the link when I can.
Keep calm and Boglehead on. KCBO.

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Re: REITs - 20% Qualified Income Deduction

Post by jtravisdavid » Wed Jul 25, 2018 2:54 pm

grok87 wrote:
Fri Jul 06, 2018 7:00 am
jebmke wrote:
Thu Jul 05, 2018 8:07 pm
jtravisdavid wrote:
Thu Jul 05, 2018 6:51 pm
A further question I have on the REIT dividend deduction that I can’t get a clear answer on: Is the deduction subject to any sort of phase out at a certain income level?
I believe there is a high income phase out.

This is one of the better write ups (fairly early so there may have been better ones since) but it does not address the individual REIT vs. REIT fund issue. My understanding is that REIT funds do not qualify for the QBI deduction but I don't recall where I read that.

https://www.kitces.com/blog/pass-throug ... bi-limits/
There is NO high income phase out. Ie everybody gets the 20% deduction on reit dividends in taxable accounts if you hold individual reits.

Will try to post the link when I can.
Grok - just checking in here...I would be very happy to have this link...

grok87
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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Wed Jul 25, 2018 3:36 pm

jtravisdavid wrote:
Wed Jul 25, 2018 2:54 pm
grok87 wrote:
Fri Jul 06, 2018 7:00 am
jebmke wrote:
Thu Jul 05, 2018 8:07 pm
jtravisdavid wrote:
Thu Jul 05, 2018 6:51 pm
A further question I have on the REIT dividend deduction that I can’t get a clear answer on: Is the deduction subject to any sort of phase out at a certain income level?
I believe there is a high income phase out.

This is one of the better write ups (fairly early so there may have been better ones since) but it does not address the individual REIT vs. REIT fund issue. My understanding is that REIT funds do not qualify for the QBI deduction but I don't recall where I read that.

https://www.kitces.com/blog/pass-throug ... bi-limits/
There is NO high income phase out. Ie everybody gets the 20% deduction on reit dividends in taxable accounts if you hold individual reits.

Will try to post the link when I can.
Grok - just checking in here...I would be very happy to have this link...
Hi jtravis,
See this link
https://money.usnews.com/investing/real ... -investors
The two Paragraphs starting with “crowe points out that shareholders...”
Cheers
Grok
Keep calm and Boglehead on. KCBO.

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Pajamas
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Re: REITs - 20% Qualified Income Deduction

Post by Pajamas » Wed Jul 25, 2018 3:42 pm

This recent article states that there is a phase-out of the deduction based on income and there are many other similar articles that state the same thing.

https://www.accountingtoday.com/opinion ... reform-law
The Tax Cuts and Jobs Act blessed REIT investors with a 20 percent tax reduction on the pass-through income received. Specifically, individual REIT investors who file jointly with taxable income less than $315,000, or file individually with income less than $157,000, may enjoy a 20 percent deduction on REIT dividends as qualified business income. REIT investors with higher taxable income — up to $415,000 jointly or $207,000 individually — also may enjoy a tax deduction on a reduced scale. REIT investors facing a high marginal income tax bracket are primary beneficiaries of the tax deduction.
Here's a more extensive discussion of it:

https://www.nolo.com/legal-encyclopedia ... ction.html

Here's the wording of the U.S. Code:

https://www.law.cornell.edu/uscode/text/26/199A

I am not sure at this point exactly how it will affect each individual REIT because REIT distributions often are not strictly income but can include capital gains, return of capital, etc. So you can't necessarily expect taxes to be reduced on a flat 20% of the gross amounts.

https://www.reit.com/investing/investin ... investment

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Wed Jul 25, 2018 4:06 pm

Thanks Pajamas.
I read your article but will counter with this Forbes article which describes the 20% deduction for reits and publicly traded partnerships as having “no strings”

https://www.google.com/amp/s/www.forbes ... ction/amp/
Keep calm and Boglehead on. KCBO.

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Re: REITs - 20% Qualified Income Deduction

Post by Pajamas » Wed Jul 25, 2018 4:10 pm

grok87 wrote:
Wed Jul 25, 2018 4:06 pm
Thanks Pajamas.
I read your article but will counter with this Forbes article which describes the 20% deduction for reits and publicly traded partnerships as having “no strings”

https://www.google.com/amp/s/www.forbes ... ction/amp/
I do believe that the "no strings" comment applies to the REIT itself, not to the individual taxpayer. If you scroll down and read the very next paragraph, it says the same thing about the income limits and phase out that the articles I linked to above state.
I've already written at some length on the topic so I will give you a quick executive summary. Below taxable income of $207,500 for a single, double that for a married couple filing jointly, there is some benefit for anybody with trade or business income (i.e. income not from employment or investment). The unlimited benefit begins phasing out at $157,500 for singles and $315,000 for married joint.

Above the phase-out it gets more complicated.
I will be the first to admit that I am not 100% sure of anything having to do with this. :beer

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Wed Jul 25, 2018 4:19 pm

I also am not completely sure.

:beer

But having reread the article I thought that reits and ptps were special and not subject to the phaseout
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Re: REITs - 20% Qualified Income Deduction

Post by Pajamas » Wed Jul 25, 2018 4:43 pm

grok87 wrote:
Wed Jul 25, 2018 4:19 pm
But having reread the article I thought that reits and ptps were special and not subject to the phaseout
I think the special treatment is in exempting them from the W-2 and depreciable asset requirements. I guess we'll know for sure when the 2018 tax forms are published. :D

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Re: REITs - 20% Qualified Income Deduction

Post by FactualFran » Wed Jul 25, 2018 5:29 pm

A relevant part of the law is

Code: Select all

COMBINED QUALIFIED BUSINESS INCOME AMOUNT. —For purposes of this section—
(1) IN GENERAL.—The term ‘combined qualified business income amount’ means, 
with respect to any taxable year, an amount equal to—
  (A) the sum of the amounts determined under paragraph (2) for each qualified 
  trade or business carried on by the taxpayer, plus
  (B) 20 percent of the aggregate amount of the qualified REIT dividends and 
  qualified publicly traded partnership income of the taxpayer for the 
  taxable year.
Limits based on wages in are paragraph (2) and later paragraphs with additional details. Those limits apply to qualified trade and business income amounts, not REIT dividends.

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Re: REITs - 20% Qualified Income Deduction

Post by jebmke » Wed Jul 25, 2018 5:31 pm

Pajamas wrote:
Wed Jul 25, 2018 4:43 pm
grok87 wrote:
Wed Jul 25, 2018 4:19 pm
But having reread the article I thought that reits and ptps were special and not subject to the phaseout
I think the special treatment is in exempting them from the W-2 and depreciable asset requirements. I guess we'll know for sure when the 2018 tax forms are published. :D
The IRS is supposed to issue guidance on pass-through business income this summer. I hope the guidance addresses REITS as well as business income.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Wed Jul 25, 2018 6:16 pm

FactualFran wrote:
Wed Jul 25, 2018 5:29 pm
A relevant part of the law is

Code: Select all

COMBINED QUALIFIED BUSINESS INCOME AMOUNT. —For purposes of this section—
(1) IN GENERAL.—The term ‘combined qualified business income amount’ means, 
with respect to any taxable year, an amount equal to—
  (A) the sum of the amounts determined under paragraph (2) for each qualified 
  trade or business carried on by the taxpayer, plus
  (B) 20 percent of the aggregate amount of the qualified REIT dividends and 
  qualified publicly traded partnership income of the taxpayer for the 
  taxable year.
Limits based on wages in are paragraph (2) and later paragraphs with additional details. Those limits apply to qualified trade and business income amounts, not REIT dividends.
Thanks.
i also went back to the link to the code that pajamas posted.
https://www.law.cornell.edu/uscode/text/26/199A
i agree with your interpretation.
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Re: REITs - 20% Qualified Income Deduction

Post by Pajamas » Wed Jul 25, 2018 7:05 pm

This article makes it easier for me to think through and I agree that the income limits only appear to apply in particular situations related to certain trades and businesses and not to REIT dividends.

http://publications.ruchelaw.com/news/2 ... on-QBI.pdf

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Wed Jul 25, 2018 7:36 pm

Pajamas wrote:
Wed Jul 25, 2018 7:05 pm
This article makes it easier for me to think through and I agree that the income limits only appear to apply in particular situations related to certain trades and businesses and not to REIT dividends.

http://publications.ruchelaw.com/news/2 ... on-QBI.pdf
THanks Pajamas, that's a really useful article. Amazing how much obfuscation went into writing that section and the article lays out the facts very nicely.
Keep calm and Boglehead on. KCBO.

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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 » Sun Jul 29, 2018 11:36 am

jebmke wrote:
Wed Jul 25, 2018 5:31 pm
The IRS is supposed to issue guidance on pass-through business income this summer. I hope the guidance addresses REITS as well as business income.
Hi jebmke -

I am curious is the additional guidance from the IRS will address whether the 20% pass through deduction will apply to individual REITs and REIT mutual funds.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REITs - 20% Qualified Income Deduction

Post by jebmke » Sun Jul 29, 2018 12:03 pm

abuss368 wrote:
Sun Jul 29, 2018 11:36 am
jebmke wrote:
Wed Jul 25, 2018 5:31 pm
The IRS is supposed to issue guidance on pass-through business income this summer. I hope the guidance addresses REITS as well as business income.
Hi jebmke -

I am curious is the additional guidance from the IRS will address whether the 20% pass through deduction will apply to individual REITs and REIT mutual funds.
I don't really know. It would make sense that it would. The IRS announced earlier in the month that they were delaying their guidance until "late July." I suspect that they are struggling to sort out all the details of this because the legislation may be vague and the deduction is essentially a brand new element in the tax return for this type of income.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Sun Jul 29, 2018 8:00 pm

jebmke wrote:
Sun Jul 29, 2018 12:03 pm
abuss368 wrote:
Sun Jul 29, 2018 11:36 am
jebmke wrote:
Wed Jul 25, 2018 5:31 pm
The IRS is supposed to issue guidance on pass-through business income this summer. I hope the guidance addresses REITS as well as business income.
Hi jebmke -

I am curious is the additional guidance from the IRS will address whether the 20% pass through deduction will apply to individual REITs and REIT mutual funds.
I don't really know. It would make sense that it would. The IRS announced earlier in the month that they were delaying their guidance until "late July." I suspect that they are struggling to sort out all the details of this because the legislation may be vague and the deduction is essentially a brand new element in the tax return for this type of income.
i have heard a few people say the IRS really does not have the leeway to apply the 20% deduction to reit mutual funds. that it would take an act of congress.
Keep calm and Boglehead on. KCBO.

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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 » Mon Jul 30, 2018 12:08 pm

grok87 wrote:
Sun Jul 29, 2018 8:00 pm
jebmke wrote:
Sun Jul 29, 2018 12:03 pm
abuss368 wrote:
Sun Jul 29, 2018 11:36 am
jebmke wrote:
Wed Jul 25, 2018 5:31 pm
The IRS is supposed to issue guidance on pass-through business income this summer. I hope the guidance addresses REITS as well as business income.
Hi jebmke -

I am curious is the additional guidance from the IRS will address whether the 20% pass through deduction will apply to individual REITs and REIT mutual funds.
I don't really know. It would make sense that it would. The IRS announced earlier in the month that they were delaying their guidance until "late July." I suspect that they are struggling to sort out all the details of this because the legislation may be vague and the deduction is essentially a brand new element in the tax return for this type of income.
i have heard a few people say the IRS really does not have the leeway to apply the 20% deduction to reit mutual funds. that it would take an act of congress.
Hi grok87 -

Interesting. Substance over form. How is an individual REIT different from a REIT mutual fund? Hopefully this will be cleared up with additional guidance.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REITs - 20% Qualified Income Deduction

Post by FactualFran » Mon Jul 30, 2018 2:18 pm

abuss368 wrote:
Mon Jul 30, 2018 12:08 pm
Interesting. Substance over form. How is an individual REIT different from a REIT mutual fund? Hopefully this will be cleared up with additional guidance.
An individual REIT is a REIT. A mutual fund that invests in REITs is not a REIT. Tax treatment that applies to a REIT does not apply to a non-REIT, such as a mutual fund, unless tax law states the tax treatment applies.

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Re: REITs - 20% Qualified Income Deduction

Post by jebmke » Mon Jul 30, 2018 2:34 pm

grok87 wrote:
Wed Jul 25, 2018 6:16 pm
FactualFran wrote:
Wed Jul 25, 2018 5:29 pm
A relevant part of the law is

Code: Select all

COMBINED QUALIFIED BUSINESS INCOME AMOUNT. —For purposes of this section—
(1) IN GENERAL.—The term ‘combined qualified business income amount’ means, 
with respect to any taxable year, an amount equal to—
  (A) the sum of the amounts determined under paragraph (2) for each qualified 
  trade or business carried on by the taxpayer, plus
  (B) 20 percent of the aggregate amount of the qualified REIT dividends and 
  qualified publicly traded partnership income of the taxpayer for the 
  taxable year.
Limits based on wages in are paragraph (2) and later paragraphs with additional details. Those limits apply to qualified trade and business income amounts, not REIT dividends.
Thanks.
i also went back to the link to the code that pajamas posted.
https://www.law.cornell.edu/uscode/text/26/199A
i agree with your interpretation.
There is a section later that defines Qualified REIT dividends
(3) Qualified reit dividend.--The term `qualified REIT
dividend' means any dividend from a real estate investment trust
received during the taxable year which--
``(A) is not a capital gain dividend, as defined in
section 857(b)(3), and
``(B) is not qualified dividend income, as defined
in section 1(h)(11).
Since it doesn't specifically include mutual funds or ETFs, it would seem that the logical interpretation is only direct REIT holdings.
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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Thu Aug 09, 2018 5:13 am

irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
Keep calm and Boglehead on. KCBO.

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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 » Thu Aug 09, 2018 12:04 pm

grok87 wrote:
Thu Aug 09, 2018 5:13 am
irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
I suspect a CCA (chief counsel advice) or technical ruling will be issued as we move forward. I would also expect as the 2018 tax programs are written additional clarification may result.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Thu Aug 09, 2018 1:30 pm

abuss368 wrote:
Thu Aug 09, 2018 12:04 pm
grok87 wrote:
Thu Aug 09, 2018 5:13 am
irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
I suspect a CCA (chief counsel advice) or technical ruling will be issued as we move forward. I would also expect as the 2018 tax programs are written additional clarification may result.
according to bloomberg
https://www.bna.com/passthrough-tax-rules-n73014481584/
a pass through entity is a business for which income flows directly to the owners who are taxed as individuals.

So NOT mutual funds.
wrote: The IRS calculated its estimate using the following assumptions:

Certain pass-throughs—businesses for which income flows directly to the owners, who are taxed as individuals—will spend 2.75 hours annually to report Section 199A information to approximately 8.8 million owners.
About 1.2 million pass-through owners will spend an additional two-thirds of an hour annually to voluntarily aggregate trade or business reporting.

Valuing the burden hours of aggregation decisions at $39 per hour and the burden hours of pass-through reporting 199A information at $53 per hour, the IRS totals the estimated gross costs of the proposed regulations at $1.317 billion over the next decade.
Keep calm and Boglehead on. KCBO.

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Re: REITs - 20% Qualified Income Deduction

Post by DaBombCat » Thu Aug 09, 2018 11:59 pm

grok87 wrote:
Wed Jul 25, 2018 3:36 pm
jtravisdavid wrote:
Wed Jul 25, 2018 2:54 pm
grok87 wrote:
Fri Jul 06, 2018 7:00 am
jebmke wrote:
Thu Jul 05, 2018 8:07 pm
jtravisdavid wrote:
Thu Jul 05, 2018 6:51 pm
A further question I have on the REIT dividend deduction that I can’t get a clear answer on: Is the deduction subject to any sort of phase out at a certain income level?
I believe there is a high income phase out.

This is one of the better write ups (fairly early so there may have been better ones since) but it does not address the individual REIT vs. REIT fund issue. My understanding is that REIT funds do not qualify for the QBI deduction but I don't recall where I read that.

https://www.kitces.com/blog/pass-throug ... bi-limits/
There is NO high income phase out. Ie everybody gets the 20% deduction on reit dividends in taxable accounts if you hold individual reits.

Will try to post the link when I can.
Grok - just checking in here...I would be very happy to have this link...
Hi jtravis,
See this link
https://money.usnews.com/investing/real ... -investors
The two Paragraphs starting with “crowe points out that shareholders...”
Cheers
Grok
The government texts are convoluted. Poor grammar makes the tax code open to interpretation. There is a statement that qualified REIT dividends—what used to be called ordinary REIT dividends—are included in the 20% pass-through entity tax deduction. What is unstated is whether qualified REIT dividends are subject to income limitations. I find it interesting that complex income limitations were placed on all other pass-through income, but somehow qualified REIT dividends were spared from the limitations.

There are a handful of opinions published on the internet—including the www.money.usnews article that grok87 cited— claiming that reit divvys are not subject to the income restrictions and that mutual fund distributions will not be deductible. However, the actual language in the code does not address either claim. I read the relavant sections of the code about 20 times. I’m not trying to be contrary to all the internet experts, but following unsupported advice could cause a bigger tax bill than expected. We have to wait for the treasury to issue guidance on how the law will be carried out. Josh

DaBombCat
Posts: 24
Joined: Fri Jun 01, 2018 10:49 pm

Re: REITs - 20% Qualified Income Deduction

Post by DaBombCat » Fri Aug 10, 2018 12:03 am

grok87 wrote:
Thu Aug 09, 2018 5:13 am
irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
Oh, well thank you grok87. I guess you answered the question of whether qualified reit divvys are subject to W2 income limits—they are not. I should have read all of your posts before writing my previous one. Doh!

grok87
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Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Fri Aug 10, 2018 4:27 am

DaBombCat wrote:
Fri Aug 10, 2018 12:03 am
grok87 wrote:
Thu Aug 09, 2018 5:13 am
irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
Oh, well thank you grok87. I guess you answered the question of whether qualified reit divvys are subject to W2 income limits—they are not. I should have read all of your posts before writing my previous one. Doh!
no problem.

so the question for many is, do the dividends that one gets by owning a reit mutual fund or reit etf benefit from the 20% break. As far as I can tell the answer is no. i think you have to own individual reits in a taxable account.
Keep calm and Boglehead on. KCBO.

zrail
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Joined: Sun Jan 28, 2018 9:18 am

Re: REITs - 20% Qualified Income Deduction

Post by zrail » Sun Aug 12, 2018 10:38 am

Mutual funds are pretty explicitly pass through entities. I don’t understand how someone could look at these regulations and say REIT funds aren’t included, but I’m not an expert.

grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Sun Aug 12, 2018 10:42 am

zrail wrote:
Sun Aug 12, 2018 10:38 am
Mutual funds are pretty explicitly pass through entities. I don’t understand how someone could look at these regulations and say REIT funds aren’t included, but I’m not an expert.
i understand your perspective. but i think there is a technical tax meaning to "pass through" and mutual funds are not "pass through" under that meaning.

for another simple example, mutual funds pass through realized capital gains but not realized capitals losses to fund shareholders (except in the sense that they offset the gains)

cheers,
grok
Keep calm and Boglehead on. KCBO.

FactualFran
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Re: REITs - 20% Qualified Income Deduction

Post by FactualFran » Mon Aug 13, 2018 5:51 pm

grok87 wrote:
Sun Aug 12, 2018 10:42 am
for another simple example, mutual funds pass through realized capital gains but not realized capitals losses to fund shareholders (except in the sense that they offset the gains)
Mutual funds are able to "pass through" long-term capital gains the fund realizes as distributions that shareholders pay income tax on at the long-term capital gain rate of the shareholder because it is explicitly in the tax law.

The tax law does not explicitly state that 20% of certain REIT dividends received by a mutual fund that the mutual fund pays to shareholders are to be treated by mutual fund shareholder as if the shareholders directly held the REITs.

TropikThunder
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Re: REITs - 20% Qualified Income Deduction

Post by TropikThunder » Mon Aug 13, 2018 7:21 pm

grok87 wrote:
Thu Aug 09, 2018 5:13 am
irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations
) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
Aren't mutual funds set up legally as corporations?

grok87
Posts: 8227
Joined: Tue Feb 27, 2007 9:00 pm

Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Mon Aug 13, 2018 7:50 pm

FactualFran wrote:
Mon Aug 13, 2018 5:51 pm
grok87 wrote:
Sun Aug 12, 2018 10:42 am
for another simple example, mutual funds pass through realized capital gains but not realized capitals losses to fund shareholders (except in the sense that they offset the gains)
Mutual funds are able to "pass through" long-term capital gains the fund realizes as distributions that shareholders pay income tax on at the long-term capital gain rate of the shareholder because it is explicitly in the tax law.

The tax law does not explicitly state that 20% of certain REIT dividends received by a mutual fund that the mutual fund pays to shareholders are to be treated by mutual fund shareholder as if the shareholders directly held the REITs.
agree.

so i think the implication is, if one wants to take advantage of the new 20% tax break on reit dividends then one needs to hold individual reits in taxable. which kind of sucks...
Keep calm and Boglehead on. KCBO.

grok87
Posts: 8227
Joined: Tue Feb 27, 2007 9:00 pm

Re: REITs - 20% Qualified Income Deduction

Post by grok87 » Mon Aug 13, 2018 7:50 pm

TropikThunder wrote:
Mon Aug 13, 2018 7:21 pm
grok87 wrote:
Thu Aug 09, 2018 5:13 am
irs guidance is out.

https://www.irs.gov/pub/irs-drop/reg-107892-18.pdf

page 6
wrote: Section 199A also allows individuals and some trusts
and estates (but not
corporations
) a deduction of up to 20 percent of their combined qualified real estate
investment trust (REIT) dividends and qualified publicly traded partnership (PTP)
income, including qualified REIT dividends and qualified PTP income earned through
passthrough entities. This component of the section 199A deduction is not limited by
W-2 wages or UBIA of qualified property.
does anybody know what it means. is a mutual fund or an ETF a passthrough entity?
Aren't mutual funds set up legally as corporations?
probably
Keep calm and Boglehead on. KCBO.

TropikThunder
Posts: 964
Joined: Sun Apr 03, 2016 5:41 pm

Re: REITs - 20% Qualified Income Deduction

Post by TropikThunder » Mon Aug 13, 2018 8:06 pm

grok87 wrote:
Mon Aug 13, 2018 7:50 pm
TropikThunder wrote:
Mon Aug 13, 2018 7:21 pm
Aren't mutual funds set up legally as corporations?
probably
Well, I guess a "Collective Investment Trust" is a trust but regular mutual funds are corporations. I can't believe it's that simple though. :P
wrote: Section 199A also allows individuals and some trusts and estates (but not corporations) a deduction of up to 20 percent of their combined qualified real estate investment trust (REIT) dividends

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abuss368
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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 » Tue Aug 14, 2018 9:02 pm

TropikThunder wrote:
Mon Aug 13, 2018 7:21 pm
Aren't mutual funds set up legally as corporations?
Bogleheads -

Mutual Funds are considered RIC - Regulated Investment Company.

You can read more here:

https://www.investopedia.com/terms/r/ric.asp
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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