Many of us in retirement advance for continued appellation reliable assets from the stocks we hold. If any of these allotment advantageous stocks are REITs and are captivated in a taxable account, there will acceptable be a nice benefit at tax time. Under the Tax Cuts and Jobs Act (TCJA) of 2017, those business entities that “pass-through” the business’s taxable operational balance to the shareholders or partners, are activity to be able to abstract 20% of those balance that are burdened to the actor as accustomed income. This will administer to such pass-through entities as S-Corporations, Partnerships (of all types), pass-through LLCs, proprietorships and yes, REITs. Best of the babble on this new answer is centered on the business owners and the nice tax breach abounding of them will receive. That’s abundant and I’m blessed for them…but I’m not a business owner, I’m retired and own a portfolio of disinterestedness and some mortgage REIT adopted stock, and so my absorption in this new answer begins and ends with REIT shares, so that is what I will focus on here. However, a aberration in the new tax cipher is this deduction, it would seem, will not administer to the REIT assets anesthetized through by alternate funds, to accommodate accessible end, bankrupt end and ETFs. I cannot affirm this, but it is what I’ve apprehend from several altered sources.
Section 199A deals with this deduction, and so that allotment of the REIT allotment that is deductible will be referred to as the “199A dividend” or sometimes as REIT Able Business Assets (QBI), but to abstain confusion, I’ll accredit to it the way the 1099-DIV does as the 199A dividend. The new aphorism requires the REIT to differentiate how abundant of their distribution, if any, will authorize as a 199A dividend. As I ahead mentioned, this charge be the absolute operational assets of the REIT. It charge exclude any basic gains, any interest, any able assets (these are burdened alone if allotment of the dividend) and any Non-Dividend Distributions, additionally referred to as Return of Basic (ROC). This will be appear in 2019 for 2018 on a new anatomy 1099-DIV, in box 5
The bulk in box 5 will again be assorted by 20% and that bulk will be taken as a deduction. If the proposed anatomy 1040 is adopted, this answer bulk will be entered on band 9 to be subtracted, forth with the greater of the taxpayer’s itemized or accepted deduction, from the Adapted Gross Assets (AGI), to again access at the taxpayer’s taxable income. Although I’m abiding this will be rare, but this answer is bound to the bottom of 20% of 199A assets or 20% of the household’s taxable assets AFTER adding out any net basic gains. The alone way I can brainstorm this accident in a retired domiciliary is if there is some absolute ample itemized answer or the domiciliary aloof retired, has not started Social Security or a alimony and acquired the aboriginal year’s assets by affairs some awful accepted basic asset, such as a rental house….and in such cases the domiciliary additionally had ample 199A dividends. So as I say, this will be rare.
The acceptable annual is one does not accept to catalog deductions to booty the 199A answer and there is no AGI phase-out (note, there is an AGI appearance out for service-related business owners to be able to abstract the REIT 199A dividend). Added acceptable annual is this applies to accepted and adopted shares as able-bodied as to disinterestedness REITs and Mortgage REITs. The not-good annual is this answer does not abate AGI and so will accept no aftereffect on AGI-calculated surtaxes such as the Net Investment Assets Tax, taxability of Social Security, Affordable Care Act subsidies or the Assets Related Monthly Adjustment Bulk (IRMAA) Medicare surtax. Also, this answer applies alone to REIT assets in a taxable annual and will not administer to REITs captivated in tax deferred/tax chargeless accounts such as IRAs. But the absolute not-so-good annual for those households that additionally authority MLPs, the accumulated REIT 199A assets charge be accumulated with the 199A distributions from all MLPs held. Abounding (most?) MLPs accept abrogating balance as apparent in box 1 of the K-1. Per Jeffrey Levine’s article…
In instances area audience own both REITs and PTPs, abrogating able PTP assets may reduce, or eliminate, any QBI answer that would accept contrarily been accessible for the able REIT dividends.
And to add a bit of insult to this abeyant injury, if the net of the REIT and MLP 199A allotment is negative, that abrogating bulk charge be agitated advanced and acclimated in approaching year 199A answer calculations! Bummer!!
But let’s get aback to the domiciliary whose canyon through assets is alone from REITs. How can we appraisal the 199A answer for the REIT assets accustomed in 2018 in a taxable account? If we can do so about reliably, conceivably we could use this to fine-tune our annual estimated tax payments to the IRS although some ability accede this, at atomic for the aboriginal year, to be a bit chancy to be acclimated in artful annual estimated payments….myself actuality one of those. But at atomic it would absolutely be nice to get some abstraction how abundant this will abate our 2018 tax bill. Unfortunately, the REIT Investor Relations offices I’ve announced to cannot activity what their 1099-DIV box 1a amounts will be for 2018, and this is understandable. But we can account it for 2017 as a asperous adviser to what it may be in 2018. Actuality is the adjustment I’m using.
I currently authority 24 REIT accepted and adopted stock. Generally, adopted banal will accommodate the greatest bulk of box 1a accustomed income, as the adopted shares are paid aboriginal with the REITs earnings. For my analogy here, I’m activity to abate this cardinal to 3 disinterestedness and 3 adopted REIT shares to accumulate it simple.
Here, I’m d I accept 1,000 shares of anniversary REIT aloof to use annular numbers. I got the 1099-DIV abstracts from the NAREIT web site, area you bang on “REIT Data” and again on “REIT Market Data” and again annal bottomward to “Year End Tax Reporting Data”. Make abiding the abstracts are for 2017 and again go, by alphabet, to the REIT in catechism and it will booty you to the 1099-DIV data. Another adjustment I’ve begin to assignment able-bodied is to artlessly blazon commodity like “NHI 2017 1099-DIV” into the Google chase folio and it will about booty you anon to a articulation to the company’s 1099-DIV. The aboriginal abstracts you charge to access is the absolute “Shareholder’s Income”, which will be the gross allotment paid for that year. Note, do not add up the annual assets you’ve accustomed for the year, as backward year timing adjustments can, for tax purposes, bang a allotment into the aing year. The aing cardinal is the box 1a Absolute Accustomed Allotment which is that allotment of the allotment that represents allotment or all of the REIT’s accustomed income. The aing bulk in box 1b, if any (and this is abnormal for best REITs) is the allotment of this accustomed allotment in 1a that is a ‘Qualified Dividend’, which represents balance the REIT paid tax on. These do not authorize as QBI and are burdened alone by the shareholder. Because they are allotment of the dividend’s accustomed income, the amount, if any, apparent in box 1b charge be subtracted from the bulk in box 1a. What charcoal I’ll accredit to as the adapted accustomed assets which represents the pass-through accustomed assets to the actor burdened at the shareholder’s tax rate, which for best retirees will be the 12% or 22% rate. For best REITs, box 1a will be abate than the absolute allotment because there are added tax appearance apparatus of the dividend, to accommodate basic assets (including accessible Section 1250 unrecaptured gain) and Return of Capital. However, I don’t affair myself with these in artful the 199A dividend, as they cannot be allotment of it.
In the archetype I’ve shown, my acceptance is these shares accept been captivated for the abounding year. For fractional year holdings, either due to purchasing shares or affairs of shares during the year, the aforementioned action can be done application appear annual allotment data, with abstracted curve for anniversary annual dividend, but the adding as apparent aloft will abide the same.
I again accumulate the per-share adapted accustomed assets allotment of the allotment for anniversary REIT for 2017 by the cardinal of shares I authority and again absolute all REITs and accumulate this absolute by 20%. Now, this is area things ability get a bit tricky. The two Investor Relations reps I batten with at Realty Assets and Tanger said they are d 100% of the adapted accustomed assets will be QBI. Sec. 199A makes bright that alone that allotment of a canyon through adapted accustomed assets that represents assets from business operations may be counted, and this may exclude things like interest, assets or accident settlements in balance of the bulk of damage, to name a few. But I’d brainstorm these are activity to be absolute baby and may be absent in rounding. So my acceptance actuality is 100% of adapted accustomed assets will authorize for the 199A deduction.
So in this example, I would booty a $3,111 answer from AGI. Unfortunately, this would be authentic for 2017 but will about absolutely not be the bulk for 2018 alike if all allotment absolute amounts remained constant, as the tax appearance of the apparatus of the allotment will about absolutely change. However, it does accord the domiciliary a ball-park appraisal of what the 2018 answer will be. It will be absorbing to see how aing this appraisal will be to the absolute absolute 199A assets that will appearance up in the arbitrary 2018 1099-DIV Box 5 I’ll get aing March.
My primary sources for this advice are from NAREIT, the IRS, Jeffrey Levin CPA, CFP and MICPA.
Disclosure: I am/we are continued CBL.PD, EQC.PD, CLNS.PD, EPR, NHI, SPG.
I wrote this commodity myself, and it expresses my own opinions. I am not accepting advantage for it (other than from Seeking Alpha). I accept no business accord with any aggregation whose banal is mentioned in this article.
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