Tax Reform’s REIT Impact

Certain tax reforms, including the Tax Cut and Jobs Act (TCJA), have made real estate investment trusts a more attractive investment, Financial Advisor reports., Financial Advisor reports. According to Financial Advisor, because most REIT distributions are classified as qualified dividends, the trusts can provide a higher deduction than would direct ownership of real estate.

“The Section 199A deduction for qualified REIT dividends, netted with qualified [publicly traded partnership] income, isn’t constrained by the income-based QBI deduction limitations,” said Mariana Moghadam, CPA with Sobel & Co. in Livingston, N.J. on Financial Advisor. “Even for a high-income taxpayer, the deduction equals 20%.”

Housing is needed no matter the economic conditions, making residential real estate a relatively safe real estate investment trusts (REIT) a safe investment, NuWire Investor notes. Real estate overall is largely safe in a recession compared to other investments.

“Real estate is protected from volatility by factors like location, scarcity, and plot size,” NuWire states. “But unlike tangible property, which is expensive to buy and tough to sell, REITs can be traded on many investing apps. Because they come in single shares, even low-budget investors can diversify their REIT holdings.”

The risk, NuWire notes, is that residential REITs are “notoriously local,” leading many investors to add investments outside the U.S., keeping their portfolio safe in the event of a large-scale national downturn.

REITs can be reliable and well-managed stocks, according to Forbes Real Estate Investor editor Brad Thomas, and interest in these stocks are growing rapidly. In a piece on Forbes, Thomas discussed the benefits of the REIT, noting the larger dividends, despite how slow REIT investments tend to be.

“That last quality gives investors their choice between keeping that additional income or reinvesting the money back into their positions,” Thomas said.

“Those are the good sides to real estate investment trusts. The downside, you could say, is that they’re not exactly going to make you rich overnight.”