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In fact, the tax treatment of REITs by the IRS makes them ideal candidates for IRAs and other retirement accounts. For one thing, because REITs are considered pass-through investments, their dividends are typically considered ordinary income (not qualified dividends) and therefore are taxable at whatever your marginal tax rate (tax bracket) is. In retirement accounts, there is no dividend tax due at the end of the year, nor is there any capital gains tax due on investor profits from the sale of any investment. In a traditional IRA, you won't pay a penny of tax until you withdraw, and in a Roth IRA, qualified withdrawals are not taxable at all.

This is a unique double tax advantage for retirement investors. Not only does REIT income avoid taxes on the corporate level, but if you hold your publicly traded REIT investments in the right account type, REIT distributions can avoid tax liability entirely. This can help your REIT dividends compound much more over long periods of time, as you can reinvest your entire distribution, not just what's left over after paying taxes.


(who has focused his REIT investing in a beneficiary IRA from his father)
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