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The Tax Advantages of Investing in REITs

Updated: Feb 16, 2023

Okay, so if you're looking for a unique investment opportunity, then a REIT might be just what you need! A REIT is basically an investment trust that owns and operates real estate assets, so you can invest in properties without actually owning them. Plus, there are tax advantages to investing in REITs - for example, the income earned by a REIT is passed through to investors, who then pay tax on the dividends they receive. And since the dividends are usually taxed at a lower rate than ordinary income, that's a pretty sweet deal!


There are different types of REITs, including equity REITs, mortgage REITs, and hybrid REITs, so you can choose which one works best for you. Investing in REITs can provide a reliable source of income and potential for long-term capital appreciation, and you can do it through publicly traded shares or non-traded REITs. So, if you're interested in investing in real estate without actually owning any property, then REITs might be worth considering!


Tax Advantages of REITs:

One of the primary benefits of investing in REITs is the tax advantages they offer. REITs are required by law to distribute at least 90% of their taxable income to their shareholders in the form of dividends. This means that the income earned by a REIT is not taxed at the corporate level, but rather, it is passed through to the investors who then pay tax on the dividends they receive.


This tax structure offers a significant advantage to investors, as the dividends received from a REIT are generally taxed at a lower rate than ordinary income. Furthermore, investors can also benefit from depreciation deductions, which can offset some of the tax liability associated with the dividends received.


Types of REITs:

There are several types of REITs, each with its own tax advantages. The most common types of REITs are equity REITs, mortgage REITs, and hybrid REITs. Equity REITs invest in and own properties, while mortgage REITs invest in and own mortgages. Hybrid REITs invest in both properties and mortgages. Each type of REIT offers unique tax advantages, and investors should carefully consider which type of REIT best suits their needs.


Investing in REITs:

Investing in REITs can provide investors with a reliable source of income and the potential for long-term capital appreciation. In addition to the tax advantages, REITs also offer a number of other benefits, including professional management, liquidity, and diversification.


Investors can invest in REITs through publicly traded shares or through non-traded REITs. Publicly traded shares offer the advantage of easy liquidity, while non-traded REITs offer potentially higher returns and lower volatility. Investors should carefully consider the pros and cons of each option before investing.


Here are some of the largest and most well-known REITs in the United States:

  1. American Tower Corporation (AMT)

  2. Prologis, Inc. (PLD)

  3. Crown Castle International Corp. (CCI)

  4. Equinix, Inc. (EQIX)

  5. Digital Realty Trust, Inc. (DLR)

  6. Simon Property Group, Inc. (SPG)

  7. Ventas, Inc. (VTR)

  8. Welltower, Inc. (WELL)

  9. Public Storage (PSA)

  10. Alexandria Real Estate Equities, Inc. (ARE)

  11. Boston Properties, Inc. (BXP)

  12. Realty Income Corporation (O)

  13. Healthpeak Properties, Inc. (PEAK)

  14. Extra Space Storage Inc. (EXR)

  15. Vornado Realty Trust (VNO)

Conclusion:

Investing in REITs can offer significant tax advantages, making them an attractive investment option for many investors. The type of REIT chosen will depend on the individual investor's needs and investment goals. With professional management, liquidity, and diversification, REITs provide investors with a unique investment opportunity.

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