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Form 1120-REIT Texas Dallas: What You Should Know
Rests are required to pay tax on certain taxable income in the same manner as ordinary income. There are many kinds of Rests and there is no standard way to make a judgment as to the type of REIT that would be beneficial for you. If you are a first-time investor in a REIT, I suggest that you first study the various kinds of Rests you may be considering. The REIT Tax Structure As with all mutual funds, Rests require that you “hold” the assets (a REIT is a mutual fund not a bond fund) while the REIT is in existence. Rests have three primary tax rights: dividends, redemption rights, and investment income rights. Most investors are familiar with these rights. Dividends: Dividend income is based on the REIT's net income (income from the real Estate Income Trusts) minus operating expenses and expenses of a REIT's investment management. It must be “adjusted” to a certain level so that the dividend can be taxed as ordinary income. The basic income rule applies from any distribution, including reinvestment of dividends, and is intended to ensure that real estate investors keep most of their income. Redemption Rights: Rests usually have redemption rights, which allow investors to buy the REIT shares back or sell a “lot” at a specified price. In general, shares are sold back at the shareholder's option over the course of 1-5 years. For example, if you buy one REIT share for 12.50 and in the following year make an annual payment of 4.25 plus an additional 1.75 in the first year, you would be required to sell the share for 21.25. If you choose not to sell the REIT share, you continue to own it for another 2 years. The REIT Investment Income Right is the right to purchase shares of the REIT for a specified period of time, usually the first three months of the investor's ownership. This is done for several reasons: 1. the REIT is trying to lock in income 2. the REIT wants to be able to sell and liquidate more Rests to generate a larger income stream 3. when you purchase, you may want to be locked in as long as you can 4.
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