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If you purchase a REIT mutual fund through a tax deferred annuity, do you wind up paying taxes on the return of capital when you begin taking payments from the annuity? (Hope that makes sense).

Yes. When you take money out of the annuity, part of the annuity distribution is a tax-free return of your contributions to the annuity and part is a taxable distribution of the increase in value of the annuity during the accumulation phase. The taxable portion of your annuity distribution is taxed at ordinary income tax rates, not capital gains rates. What happens within the REIT is irrelevant to your tax situation.

Note, this is entirely different from the situation where you invest in the REIT with non-tax-sheltered dollars.

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