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The Tax Cuts and Jobs Act, and relative proposed regulations issued in August 2018, has provided for a 20% business deduction relating to Qualified REIT (Real Estate Investment Trust) and Qualified PTP (Publicly Traded Partnership) income.
Under Proposed Regulations 1.199A-3(c)(2) qualified REIT dividends and qualified PTP income that is earned directly through a Relevant Pass-through Entity (“RPE”) (RPE is used to describe pass-through entities that directly operate the trade or business or pass through the trade or business’ items of income, gain, loss, or deduction from lower-tier RPEs to the individual).
REIT Dividend Limitations
The term qualified REIT dividend means any dividend from a REIT received during the taxable year which—
(A) is not a capital gain dividend, as defined in section 857(b)(3), and
(B) is not qualified dividend income, as defined in section 1(h)(11).
Qualified PTP Income
(i) In general. The term qualified PTP income means the sum of—
(A) The net amount of such taxpayer’s allocable share of income, gain, deduction, and loss from a PTP as defined in section 7704(b) that is not taxed as a corporation under section 7704(a), plus
(B) Any gain or loss attributable to assets of the PTP giving rise to ordinary income under section 751(a) or (b) that is considered attributable to the trades or businesses conducted by the partnership.
What does this mean for you?
Simply, all else equal, investments in REIT’s and PTP’s assuming the deduction does apply could potentially yield a higher after-tax return on your investment.
Disclaimer
The information provided herein is intended solely for informational purposes and no person(s) or other third-party may rely upon it as tax or legal advice or use it for any other purpose. As a result, Royal Financial assumes no responsibility whatsoever to readers, or any other persons for that matter, as a result of the use of information contained herein.