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Tax experts? (REIT Taxable Income)


fishwithwings
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REITS calculate their taxable income like any corporation, using GAAP. The reason that distributions nearly always exceed reported GAAP income is because for equity REITs, reported depreciation nearly always materially exceeds actual maintenance capital expenditure needs. For example, if reported depreciation for a property was $5 million but actual maintenance capital expenditure was only $2 million for the period, that extra $3 million is distributable cash flow though it does not flow through to GAAP income.

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Here's my question. If they didn't return that excess capital > net income, would that still be tax exempt at the company level? As long as they pay out all of their net income?

I'm confused. what should be tax exempt? Capital?

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Guest Schwab711

Thanks for the response.  Do you mind taking a look at the example attached... After doing the adjustments you mentioned I still can't figure out how the dividend was figured out.

 

The company may provide something like a 1099-div tax form on their website that details the type of dividend payments. If not, I'm sure you could request a breakout for prior years. It will tell you what % is qualified/non-qualified/return of capital.

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Here's my question. If they didn't return that excess capital > net income, would that still be tax exempt at the company level? As long as they pay out all of their net income?

I'm confused. what should be tax exempt? Capital?

 

I'm referring to income taxes which REITs don't have to pay as long as they pay out something like 90% of taxable income as dividends. This applies to GAAP taxable income. Obviously if depreciation > maintenace capex, they generate more free cash than net income; but this wouldn't make a difference as far as whether the REIT is tax exempt or not, correct?

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