Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
"As for a stock whose dividend is largely (or even partly) a return of capital, I don't know why you call that tax advantaged. Generally, that means that the company wants to maintain its dividends, but has insufficient earnings to do so."

REITs are the classic case I was thinking of. It is standard in that industry. In order to allow the maximum tax advantage for their investor, they attempt to identify as much of the dividend as possible as return of capital. This is true whether they are bringing in plenty of money or not.

The tax advantage comes in that you don't pay tax on it right away, but put off the tax bill until you sell the stock and pay it in the form of a greater capital gains tax bill on the reduced cost basis. Because REIT dividends are non-qualified, transfering the tax from the dividend to something that could end up as a long-term capital gain is also an advantage.

I don't necessarily plan to avoid REITs, but I will consider putting them in the an IRA brokerage account rather than a taxable account in the future if there is no compelling reason to do otherwise.
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement