Investing in REITs: Real Estate Investment Trusts, 4th Edition

APPENDIX A

Death and Taxes

When REIT stocks are held in taxable accounts, i.e., outside of individual retirement accounts (IRAs) or other tax-advantaged accounts such as 401(k) plans, they have two significant disadvantages with respect to their non-REIT cousins. Assuming an 8 percent total return expectation and a dividend yield of 2 percent for the typical non-REIT stock, about 75 percent of such total return will consist of capital appreciation, which—if held for more than 12 months—is taxed at long-term capital gain rates. Congress recently extended for two years the maximum capital gain tax rates in effect at the end of 2010, which were 15 percent (5 percent for low-bracket taxpayers). Thus, most of the expected returns from non-REIT stocks ...