REITS & Cost Segregation
Real Estate Investment Trusts (REITs) are bound by rules and regulations that often hinder their ability to retain, and thus, reinvest earnings. Many REITs are eligible to implement cost segregation studies. Unfortunately, misinformation has left many REITs believing that their organization isn’t eligible. The most common type that can implement this strategy and realize a substantial benefit are Equity REITs. This is especially true for those that have privatized and those that are positioning to privatize. Let’s explore a strategy for using cost segregation with a focus on what’s important to the managers of these entities. The purpose of our Cost Segregation Studies is to help maximize depreciation benefits for federal income tax purposes.
How Can REITS Benefit From Cost Segregation Studies?
- A REIT can significantly reduce overall taxable income and subsequently its distribution requirement, thereby retaining additional cash flow.
- A CSS permits a REIT to pay dividends in the form of return of capital (untaxed until the shareholders shares are sold) instead of ordinary income. If the shareholder holds onto the shares for over 1 year, this will be taxed at the long term capital gainsrate rather than the ordinary income rate
- Investors typically prefer dividends with the greatest percentage of return of capital. A CSS increases the return of capital component, thereby increasing the Taxable equivalent yield.
- REITs are eligible to derive up to 15% of their total rental income from personal property that is leased under, or in connection with, the lease of real property.
- Proper identification of 1245 property helps maximize the depreciation deduction resulting in increased cash flow.
WE NEED TO PUT SOMETHING ELSE HERE SO THIS PAGE IS NOT SO BARE. MAYBE AND IMAGE CAROUSEL OR SOMETHING SIMILAR
