REIT Investments Spike Due to Relaxation of Tax Rules

by Frank L. Brunetti on January 18, 2013

Relaxation of REIT Tax Rules

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More investors have begun incorporating real estate investments trust into their portfolios as the Internal Revenue Service takes a more relaxed stance on how REITs are structured for tax purposes.

Strict rules surrounding these accounts previously excluded individual investors and small businesses from this type of investment, and instead only opened them REITs up to large institutional investors. In recent months, however, more baby boomers who are trying to bolster retirement income, as well as small businesses, are showing more interest in these funds and utilizing them for wealth-building purposes, according to Forbes. In addition, more companies are converting to an REIT structure to gain tax benefits.

This is primarily because the IRS, in recent months, has taken a more flexible viewpoint regarding what qualifies as real property, and this relaxation has enabled more companies to convert to this structure. As more businesses can include structures, such as billboards, shelving, cellphone towers and other infrastructure as real property, investing in real estate has become more profitable for all involved. Further, an expansion of the REIT industry enables investors to continue diversifying their portfolios in an era where tax law changes and uncertainties have made investors skittish, Forbes reports.

While the IRS has relaxed its standards of what may qualify as an REIT, some uncertainty still lingers. For example, the federal tax agency has not yet ruled whether solar farms would qualify as an REIT. The solar industry has been hurt recently as a result of some notable bankruptcies, but is still viewed by many investors as an up and coming industry.

However, as the IRS continues to further clarify these definitions, there may be a shift where businesses and individuals invest.

If you would like to speak about the topic above regarding your own REIT Investments, please call me, Frank L. Brunetti.

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