IRS Taxes REIT and BDC Dividends Up to 37%, Cutting $12,670 From $34,240 Income
Updated
Updated · 24/7 Wall St. · Oct 29
IRS Taxes REIT and BDC Dividends Up to 37%, Cutting $12,670 From $34,240 Income
3 articles · Updated · 24/7 Wall St. · Oct 29
Summary
$34,240 in annual payouts from five REIT and BDC holdings would shrink to $21,570 in a taxable account for a top-bracket investor, versus the full amount in a Roth account.
REIT and BDC distributions generally do not qualify for the 0%, 15% or 20% qualified-dividend rates, so the IRS taxes most of that income at ordinary rates up to 37%, with a possible extra 3.8% net investment income tax.
At a 24% bracket, the same $500,000 portfolio would owe $8,220 a year in federal tax; over 10 years that gap reaches $82,170 before growth, and $244,690 over 20 years if reinvested at 4%.
Ares Capital's 10.2% yield makes it the biggest tax drag in a taxable account, while the other highlighted names are Realty Income, Main Street Capital, W. P. Carey and EPR Properties.
The report urges investors to compare ordinary and qualified dividends on Form 1099-DIV and consider phased Roth conversions, especially for high-yield ordinary-income assets.