The Exciting New Benefits of REITs
The benefits to REITs under the Tax Cuts and Jobs Act of 2017 are not yet widely known to most investors. REITs have historically outperformed the S&P 500 but are now even more attractive investments thanks to tax reform. Below is a list of some of the new benefits available to REIT investors:
- 20% deduction on pass-through income from REITs
- The deduction can be taken even if not itemizing
- Reduces tax rate on REIT dividends from 39.6% –> 29.6% at top bracket
- Typically, the 20 percent pass-through deduction is limited to whichever is greater – 50 percent of wages paid by the business or 25 percent of wages, plus 2.5 percent of the property’s original purchase price. However, REIT dividends have been excluded from the wage restriction and thus don’t have any cap on how much can be deducted
- REITs with corporate tenants (ex: retail, office or industrial REITs) benefit because their tenants now are taxed at a lower rate, which makes these tenants more profitable and thus more stable
“Notably, the new Qualified Business Income (QBI) deduction under Section 199A is available for direct investments in real estate as well. However, direct real estate investments only qualify for the deduction if the amount of real estate investment activity amounts to a real estate “business” (where purely passive real estate investment income may not count) and is further limited for certain high-income individuals due to wage-and-depreciable-property tests that apply to married couples with taxable income above $315,000, and all other filers with taxable income about $157,500. By contrast, qualified REIT dividends simply obtain the 20% Section 199A deduction, implicitly counting as a real estate “business” (by virtue of a REIT’s size and scale), and without any high-income limitations on the deduction!”
Kitces.com | The Section 199A Tax Benefits of REITs Over Direct Real Estate Investments, Michael Kitces, Nerd’s Eye View
Additionally, a great valuation rift has arisen between small cap and large cap REITs with the small caps being significantly cheaper.
- The 30 largest REITs trade at an average of 18.1X consensus 2019 FFO
- The 30 smallest REITs trade at an average of 12.5X consensus 2019 FFO
To take advantage of this opportunity, 2nd Market Capital is raising $30mm in a REIT dedicated fund – solely to accredited investors – called Corsaires High Income Value Equities, LLC or “CHIVE” which will be used to invest in fundamentally strong REITs at a good value.
Additional details are included in CHIVE’s Private Placement Memorandum, which is available to accredited investors only and is posted on the Company’s offering portal at https://chive.2ndmarketcapital.com/.
NOTICE: This material and content is qualified in its entirety by an offering memorandum (the “Memorandum") which contains more complete information including risk factors. The material contains forward-looking statements and hypothetical economic forecasts that may not be realized. Past performance is not indicative of future results which are difficult to predict. Actual results may materially vary from your expectations. By receiving or viewing this material, you acknowledge and agree not to rely upon it in making an investment decision. Please read the Memorandum. This material does not constitute or form a part of any offer to sell or solicitation to buy securities nor shall it or any part of it form the basis of any contract or commitment whatsoever. Without limiting the foregoing, this material does not constitute an offer or solicitation in any jurisdiction in which such an offer or solicitation is not permitted under applicable law or to any person or entity who is not an “accredited investor” as defined under Rule 501(a) of the U.S. Securities Act of 1933, as amended, or who does not possess the necessary qualifications described in the Memorandum and/or Rule 506(c) under Regulation D of the U.S. Securities Act of 1933, as amended. Please read the Memorandum.
2nd Market Capital Advisory Corporation does not provide tax advice. The material contained herein is for informational purposes only and is not intended to replace the advice of a qualified tax advisor.
Hypertext links to other sites are provided strictly as a courtesy. When you link to any of the sites provided on our website, you are leaving this website. We make no representation as to the completeness or accuracy of information provided on these websites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website. When you access one of these websites, you are leaving our website and assume total responsibility and risk for your use of the websites to which you are linking.
Investment advisory services offered through 2nd Market Capital Advisory Corporation, a Wisconsin registered investment advisor.
View disclosure information for 2nd Market Capital Advisory Corporation and our investment professionals by visiting the SEC Investment Advisor Public Disclosure website.
Copyright 2019 2MCAC | Website built and maintained by Jack Knesek