What are REITs SARS?
A REIT stands for Real Estate Investment Trust. This is a listed property investment vehicle. Distributions from REITs must be included in the taxpayer’s taxable income and will be taxed per their marginal tax rate.
How is REIT income taxed in South Africa?
A South African tax resident natural person investing in a REIT will be subject to income tax on dividends received by or accrued from a REIT at a maximum rate of 40%. … A South African trust investing in a REIT would be liable to income tax in respect of dividends received or accrued from a REIT at a rate of 40%.
What is a REIT for tax purposes?
A REIT is a company that owns, operates or finances income-producing real estate. They are similar to mutual funds, in that REITs pool together capital from a large number of investors.
Is REIT income taxable?
While most REIT dividends are taxable as ordinary income, they also get one very valuable tax break for investors who qualify. Specifically, REIT dividends are generally considered to be pass-through income, similar to money earned by an LLC and passed through to its owners.
Why are REITs tax exempt?
Legally, a REIT must annually distribute at least 90% of its taxable income in the form of dividends to its stockholders. This allows REITs to pass on their tax burden to shareholders rather than pay federal taxes themselves.
What is REIT income?
REITs, or real estate investment trusts, are companies that own or finance income-producing real estate across a range of property sectors. … The stockholders of a REIT earn a share of the income produced – without actually having to go out and buy, manage or finance property.
How does a REIT work in South Africa?
All SA REITs own income-producing property. … Investors can also buy or sell shares in SA REITs at any time, without the costs and delays involved with physical property ownership. SA REITs provide a lower-risk property investment model because investors are exposed to a diversified portfolio of properties.
How do you qualify for REIT status?
To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
How do REITs distribute income?
Real estate investment trusts, or REITs, are famously required to pay out most of their earnings as dividends in exchange for being treated as pass-through businesses by the IRS. The short version is that when a REIT calculates its taxable income for a given year, it must have paid out at least 90% of it as dividends.
Why REITs are a bad investment?
The biggest pitfall with REITs is they don’t offer much capital appreciation. That’s because REITs must pay 90% of their taxable income back to investors which significantly reduces their ability to invest back into properties to raise their value or to purchase new holdings.
What are the disadvantages of REITs?
Disadvantages of REITs
- Weak Growth. Publicly traded REITs must pay out 90% of their profits immediately to investors in the form of dividends. …
- No Control Over Returns or Performance. Direct real estate investors have a great deal of control over their returns. …
- Yield Taxed as Regular Income. …
- Potential for High Risk and Fees.
How do REITs avoid taxes?
The best way to avoid paying taxes on your REITs is to hold them in tax-advantaged retirement accounts, including traditional or Roth IRAs, SIMPLE IRAs, SEP-IRAs, or another tax-deferred or after-tax retirement accounts.