How the New Tax Law Affects REITs

Cathy BarreThe tax bill signed into law last month by President Donald J. Trump, the Tax Cuts and Jobs Act (TCJA), includes a number of provisions related to REIT and real estate investment. Cathy Barré, Nareit’s senior vice president for policy and politics, appeared on Nareit’s REIT Report Podcast to offer her insights on the bill’s effect on REITs.

Regarding the new law’s general reforms to the U.S. tax system, Barré noted that the TCJA cuts tax rates for all income levels though the year 2025. “This tax relief is offset somewhat by limits on individuals’ itemized deductions and by limits on several business benefits,” she added.

Regarding REITs, Barré said shareholders are eligible starting this year for a lower effective pass-through business income tax rate through the creation of a new deduction for individuals, estates, and trusts of 20 percent of their combined qualified business income amount. REIT dividends fully qualify for this deduction, she said.

Barré pointed out that the TCJA generally limits the deductibility of business interest for every business to 30 percent of its adjusted taxable income. “However, real property trades or businesses, including real property trades or businesses conducted by widely held corporations and REITs, are permitted to elect out of this limitation,” she noted.

Barré also discussed the new law’s impact on expensing and the withholding tax rate applicable to REIT capital gain distributions to non-U.S. shareholders that are attributable to the sale or exchange of U.S. real property interests.

For more insight on the new tax provisions and the impact on REITs, join us at Nareit’s REITwise: 2018 Tax, Law & Accounting Conference in Hollywood, Florida.

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