REITs - 20% Qualified Income Deduction

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FactualFran
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Re: REITs - 20% Qualified Income Deduction

Post by FactualFran »

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 »

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?
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grok87
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Re: REITs - 20% Qualified Income Deduction

Post by grok87 »

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...
RIP Mr. Bogle.
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grok87
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Re: REITs - 20% Qualified Income Deduction

Post by grok87 »

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
RIP Mr. Bogle.
TropikThunder
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Re: REITs - 20% Qualified Income Deduction

Post by TropikThunder »

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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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 »

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
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grok87
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Re: REITs - 20% Qualified Income Deduction

Post by grok87 »

great news!

just read in the nytimes that the final regs will let reit mutual fund shareholders who hold in taxable accounts get the deduction. awesome news!

see page 6 of this link
https://www.irs.gov/pub/irs-drop/reg-134652-18.pdf
i think RIC = mutual fund

and here
https://home.treasury.gov/news/press-releases/sm589
wrote: The Treasury issued further related proposed regulations that provide further certainty for determining the deduction for REIT dividends taxpayers own through mutual funds and a proposed revenue procedure providing a safe harbor, so that certain rental real estate enterprises may be treated as a trade or business for purposes of the deduction.
cheers,
grok
RIP Mr. Bogle.
danaht
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by danaht »

grok87 wrote: Fri Jul 06, 2018 7:04 am
abuss368 wrote: Thu Jul 05, 2018 6:35 pm This was a helpful thread. In another thread I recently asked the same question (unaware of this thread at the time). I suspect it will be determined once final regulations are provided.
Thanks.
Maybe somebody like a mod could link or merge these threads together.

Also my understanding is that the fact that reit mutual funds do not be the 20% deduction for dividends is not something that can be fixed by “regulations”. It would need to be fixed by some sort of technical corrections bill to be passed by Congress.
Just received my consolidated 1099 from TD Ameritrade. In this account - I only have one ETF fund that generates REIT dividends (USRT). The 1099 shows that USRT generated "Section 199A dividends" of $42. So, I can confirm that TD Ameritrade is reporting Section 199A dividends for ETFs. I am not sure if this will also be true for mutual funds - but it appears that REIT ETFs get this favorable tax treatment. Hooray!
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by abuss368 »

danaht wrote: Thu Feb 14, 2019 6:10 pm
grok87 wrote: Fri Jul 06, 2018 7:04 am
abuss368 wrote: Thu Jul 05, 2018 6:35 pm This was a helpful thread. In another thread I recently asked the same question (unaware of this thread at the time). I suspect it will be determined once final regulations are provided.
Thanks.
Maybe somebody like a mod could link or merge these threads together.

Also my understanding is that the fact that reit mutual funds do not be the 20% deduction for dividends is not something that can be fixed by “regulations”. It would need to be fixed by some sort of technical corrections bill to be passed by Congress.
Just received my consolidated 1099 from TD Ameritrade. In this account - I only have one ETF fund that generates REIT dividends (USRT). The 1099 shows that USRT generated "Section 199A dividends" of $42. So, I can confirm that TD Ameritrade is reporting Section 199A dividends for ETFs. I am not sure if this will also be true for mutual funds - but it appears that REIT ETFs get this favorable tax treatment. Hooray!
Interesting.
John C. Bogle: “Simplicity is the master key to financial success."
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grok87
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by grok87 »

abuss368 wrote: Thu Feb 14, 2019 7:00 pm
danaht wrote: Thu Feb 14, 2019 6:10 pm
grok87 wrote: Fri Jul 06, 2018 7:04 am
abuss368 wrote: Thu Jul 05, 2018 6:35 pm This was a helpful thread. In another thread I recently asked the same question (unaware of this thread at the time). I suspect it will be determined once final regulations are provided.
Thanks.
Maybe somebody like a mod could link or merge these threads together.

Also my understanding is that the fact that reit mutual funds do not be the 20% deduction for dividends is not something that can be fixed by “regulations”. It would need to be fixed by some sort of technical corrections bill to be passed by Congress.
Just received my consolidated 1099 from TD Ameritrade. In this account - I only have one ETF fund that generates REIT dividends (USRT). The 1099 shows that USRT generated "Section 199A dividends" of $42. So, I can confirm that TD Ameritrade is reporting Section 199A dividends for ETFs. I am not sure if this will also be true for mutual funds - but it appears that REIT ETFs get this favorable tax treatment. Hooray!
Interesting.
Yep. Treasury ruled last month that owners of reit etfs and mutual funds get the deduction
RIP Mr. Bogle.
blueman457
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by blueman457 »

Does that mean I should move REITs into taxable? Or that I should feel ok moving it into taxable if I run out of tax advantaged space.

Blue Man
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by SlowMovingInvestor »

It'll be interesting to see qualified/non qualified breakup for Vanguard's REIT fund ETFs/MFs.

They haven't yet released it, which is delaying 1099s that rely on them :(

For Vanguard Global Real Estate it's only 20%, but Global Real Estate is a odd duck with a lot of non REITs, dividend nature based on tax treaty, foreign tax credit etc.
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by StevieG72 »

I dumped REITs a few years ago, less is more.
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by simplesimon »

blueman457 wrote: Fri Feb 15, 2019 7:35 am Does that mean I should move REITs into taxable? Or that I should feel ok moving it into taxable if I run out of tax advantaged space.

Blue Man
I would like to know this as well.
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by LadyGeek »

abuss368 wrote: Thu Jul 05, 2018 6:35 pm This was a helpful thread. In another thread I recently asked the same question (unaware of this thread at the time). I suspect it will be determined once final regulations are provided.
I merged abuss368's thread into grok87's question. Both threads (and the post quoted) are from 2018.

grok87 bumped the thread to post the final results (above):
grok87 wrote: Sat Jan 19, 2019 10:25 am great news!

just read in the nytimes that the final regs will let reit mutual fund shareholders who hold in taxable accounts get the deduction. awesome news!

see page 6 of this link
https://www.irs.gov/pub/irs-drop/reg-134652-18.pdf
i think RIC = mutual fund

and here
https://home.treasury.gov/news/press-releases/sm589
wrote: The Treasury issued further related proposed regulations that provide further certainty for determining the deduction for REIT dividends taxpayers own through mutual funds and a proposed revenue procedure providing a safe harbor, so that certain rental real estate enterprises may be treated as a trade or business for purposes of the deduction.
cheers,
grok
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by abuss368 »

grok87 wrote: Fri Feb 15, 2019 6:07 am
abuss368 wrote: Thu Feb 14, 2019 7:00 pm
danaht wrote: Thu Feb 14, 2019 6:10 pm
grok87 wrote: Fri Jul 06, 2018 7:04 am
abuss368 wrote: Thu Jul 05, 2018 6:35 pm This was a helpful thread. In another thread I recently asked the same question (unaware of this thread at the time). I suspect it will be determined once final regulations are provided.
Thanks.
Maybe somebody like a mod could link or merge these threads together.

Also my understanding is that the fact that reit mutual funds do not be the 20% deduction for dividends is not something that can be fixed by “regulations”. It would need to be fixed by some sort of technical corrections bill to be passed by Congress.
Just received my consolidated 1099 from TD Ameritrade. In this account - I only have one ETF fund that generates REIT dividends (USRT). The 1099 shows that USRT generated "Section 199A dividends" of $42. So, I can confirm that TD Ameritrade is reporting Section 199A dividends for ETFs. I am not sure if this will also be true for mutual funds - but it appears that REIT ETFs get this favorable tax treatment. Hooray!
Interesting.
Yep. Treasury ruled last month that owners of reit etfs and mutual funds get the deduction
Interesting. This changes the game for REITs in taxable compared to the previous tax code. Overall rates have decreased and now a 20% deduction.
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by abuss368 »

LadyGeek wrote: Fri Feb 15, 2019 9:05 am
abuss368 wrote: Thu Jul 05, 2018 6:35 pm This was a helpful thread. In another thread I recently asked the same question (unaware of this thread at the time). I suspect it will be determined once final regulations are provided.
I merged abuss368's thread into grok87's question. Both threads (and the post quoted) are from 2018.

grok87 bumped the thread to post the final results (above):
grok87 wrote: Sat Jan 19, 2019 10:25 am great news!

just read in the nytimes that the final regs will let reit mutual fund shareholders who hold in taxable accounts get the deduction. awesome news!

see page 6 of this link
https://www.irs.gov/pub/irs-drop/reg-134652-18.pdf
i think RIC = mutual fund

and here
https://home.treasury.gov/news/press-releases/sm589
wrote: The Treasury issued further related proposed regulations that provide further certainty for determining the deduction for REIT dividends taxpayers own through mutual funds and a proposed revenue procedure providing a safe harbor, so that certain rental real estate enterprises may be treated as a trade or business for purposes of the deduction.
cheers,
grok
Many thanks LadyGeek!
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FactualFran
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Re: REITs - 20% Qualified Income Deduction

Post by FactualFran »

grok87 wrote: Sat Jan 19, 2019 10:25 am great news!

just read in the nytimes that the final regs will let reit mutual fund shareholders who hold in taxable accounts get the deduction. awesome news!

see page 6 of this link
https://www.irs.gov/pub/irs-drop/reg-134652-18.pdf
i think RIC = mutual fund
According to page 9 of the proposed regulations: "Section 199A directs the Secretary to prescribe such regulations as are necessary to carry out the purposes of section 199A, including regulations for its application in the case of tiered entities."

I did not previously know that a mutual fund was a "tiered entity". With other cases of dividends from a mutual fund being taxed as other than ordinary income, such as with capital gain and Qualified Dividend Income dividends, the tax law prescribes the tax treatment. With the tax treatment of section 199A, the tax law gives the Secretary of the Treasury more authority to prescribe regulations than in other cases.
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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 »

FactualFran wrote: Fri Feb 15, 2019 2:51 pm
grok87 wrote: Sat Jan 19, 2019 10:25 am great news!

just read in the nytimes that the final regs will let reit mutual fund shareholders who hold in taxable accounts get the deduction. awesome news!

see page 6 of this link
https://www.irs.gov/pub/irs-drop/reg-134652-18.pdf
i think RIC = mutual fund
According to page 9 of the proposed regulations: "Section 199A directs the Secretary to prescribe such regulations as are necessary to carry out the purposes of section 199A, including regulations for its application in the case of tiered entities."

I did not previously know that a mutual fund was a "tiered entity". With other cases of dividends from a mutual fund being taxed as other than ordinary income, such as with capital gain and Qualified Dividend Income dividends, the tax law prescribes the tax treatment. With the tax treatment of section 199A, the tax law gives the Secretary of the Treasury more authority to prescribe regulations than in other cases.
I did not know that. Interesting.
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by grok87 »

simplesimon wrote: Fri Feb 15, 2019 9:04 am
blueman457 wrote: Fri Feb 15, 2019 7:35 am Does that mean I should move REITs into taxable? Or that I should feel ok moving it into taxable if I run out of tax advantaged space.

Blue Man
I would like to know this as well.
I think the math is not completely clear. I have moved some of my reits to taxable.

It is important to understand that not all of individual reits income is ordinary income anyway. Individual reits distribute capital gains and return of capital as well. And if you hold a reit mutual fund those get passed on to you. If you hold in a tax deferred account those will eventually be taxed as ordinary income. If you hold in a taxable account they will be taxed at more favorable rates.
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Re: Indiv. REITs in taxable because of new tax law? Aargh!

Post by abuss368 »

grok87 wrote: Fri Feb 15, 2019 3:25 pm
simplesimon wrote: Fri Feb 15, 2019 9:04 am
blueman457 wrote: Fri Feb 15, 2019 7:35 am Does that mean I should move REITs into taxable? Or that I should feel ok moving it into taxable if I run out of tax advantaged space.

Blue Man
I would like to know this as well.
I think the math is not completely clear. I have moved some of my reits to taxable.

It is important to understand that not all of individual reits income is ordinary income anyway. Individual reits distribute capital gains and return of capital as well. And if you hold a reit mutual fund those get passed on to you. If you hold in a tax deferred account those will eventually be taxed as ordinary income. If you hold in a taxable account they will be taxed at more favorable rates.

REITs continue to be taxed the same as the underlying real estate.
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Re: REITs - 20% Qualified Income Deduction

Post by Register44 »

:arrow:
Last edited by Register44 on Mon Jan 11, 2021 7:39 pm, edited 1 time in total.
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Re: REITs - 20% Qualified Income Deduction

Post by abuss368 »

Register44 wrote: Sun Dec 27, 2020 9:02 pm Can anyone verify if the etfs VNQ/SCHH/REET now get the favorable 20% tax deduction that initially was only for individual companies?
https://www.fool.com/millionacres/taxes ... companies/
Correct - Vanguard REIT Index does qualify for the 20% QBI deduction. This is reported on the Form 1099-DIV.

Tony
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