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If a company declares a dividend with a record date in '05 but actually pays the dividend in '06, in which year is the dividend taxable?
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I seem to remember it is in the year the dividend is actually paid. You will get a revised 1099. I have had this happen to me fairly often, but I just go with the flow so I don't recall specifically.

brucedoe
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This is referred to as the 'January Dividend'. For REITs, if the Ex-D date is December, but the pay date is Jan, the taxable year is December. This also holds true with Mutual Funds. Interestingly, it doesn't seem to hold with any other investment, such as C-corps.

The following is from Pub 550:

"Dividends received in January. If a regulated investment company (mutual fund) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or Capital gain distribution) in October, November, or December payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. You report the dividend in the year it was declared."

This is why its' important to check your brokerage's 1099 to make sure a January dividend isn't double-taxed the next year.

BruceM
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"This is why its' important to check your brokerage's 1099 to make sure a January dividend isn't double-taxed the next year"

Does anyone know if Turbotax handles REITS appropriately with respect to return of capital versus dividends?

I enjoy using it, and getting my 1099's delivered online into the program, but I've never been sure if its crossing all T's, etc.

mark
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<Does anyone know if Turbotax handles REITS appropriately with respect to return of capital versus dividends?>


I only have last year to go by regarding TurboTax. I used the online version, but did not have any data sent directly to them. From where I sit, the onus seems to be on the taxpayer to know that the information supplied is correct. I had to make several calls into my brokerage as they did not send me the correct information, even with their revised 1099's.

Rather than assuming the brokerage firm will get it right, I think us REIT holders need to be proactive on this issue. In January, I visited the web page of every REIT that I owned looking for their press releases on dividend treatments for the year. Then I made up a spreadsheet to put all of the data in one place. I am not sure how others experiences turned out, but I only had one change that was made after Feb 1. It is my impression that REIT holders get so many revised 1099's not because of super late reporting by the individual REITs, but because of slow and sloppy record keeping by the brokerages. In years past when I trusted them to get it right on their own, I would sometimes get 4-5 corrected 1099's. Each new 1099 would have one correction on it rather than all of them.

In any case I would urge everyone to not plan on filing their returns too early in the tax season. Additionally, I would suggest when you get any updated dividend information, you immediately make any necessary adjustments to your cost basis. Anything deemed to be a ROC will lower your tax bill regarding dividend income. That same change will increase your tax bill on any future sale due to the lowering of your cost basis. Never assume that your brokerage will adjust your cost basis for you. I keep spreadsheets for every holding that I have which makes record keeping a lot easier for me. Some REITs will also have a good portion of their dividends classified as LTCG or section 1250 income. Each of those catagories will be taxed at different rates. Once you put the right information in the right place, TT is pretty good at doing the calculations. Unfortunately, getting to that point is not always easy.

Our REITs may be more complicated than most other equities, but the benefits still outweigh the added burden of record keeping IMO.


B
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"I only have last year to go by regarding TurboTax...."

It sounds then as though Turbotax at least can handle a correct 1099, yes?
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In addition to being proactive with the brokerage firms I also urge REIT holders each year to keep copies of dividend tax status press releases for each REIT they have owned durng the year in their files.
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"It is my impression that REIT holders get so many revised 1099's not because of super late reporting by the individual REITs, but because of slow and sloppy record keeping by the brokerages."

I'll through a couple of more reasons.

1) Federal law requires 1099's to be issued by Jan 31 of the following year.

2) If a REIT has a calendar tax year, it can't begin to calculate the dividend, capital gains distribution, 1250 gain, and/or return of capital until the end of business on Dec. 31. Of course a corporate return for a calendar year-end is due by March 15, but they have to know taxable income and the related E&P on which the taxable nature of dividends are based on by Jan 31. By the tax regulations, you can't always calculate the components of the 1st quarter dividend until the entire end of the year, especially if there is any return of capital.

One more reason I prefer to hold them in tax deferred accounts.
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..In years past when I trusted them to get it right on their own, I would sometimes get 4-5 corrected 1099's. Each new 1099 would have one correction on it rather than all of them...

that's most likely because this is computer driven to cut a revised 1099 whenever data in any single field changes (from prior). that's very much easier for them to do from a procesing point of view, than to keep a record of all the changed fields for that investor, and then cut one new 1099.
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NAREIT posts 1099 information for its member REITs. See:

http://www.nareit.com/library/industry/tax_data.cfm .

The data shows, among other things, what part of a REIT's dividends qualify for the 15% maximum rate. MF readers might bwe interested in this chart classifying 1995-2004 REIT dividends:

http://www.nareit.com/library/industry/DividendAllocationSummary.xls
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