TIP OF THE WEEK – REITs and other stocks don’t qualify for lower dividend tax treatment

REITs and other stocks don’t qualify for lower dividend tax treatment

Jason Brizic

Jan. 7, 2011

On December 17th, 2010 president Obama signed the bill extending the Bush tax cuts for another two years.  Investors who receive qualified dividends will continue to enjoy the same 15% maximum tax rate as capital gains.

REITs, master limited partnerships (MLPs), and some foreign stocks don’t qualify and are taxed as ordinary income.  Foreign stocks that are American Depository Receipts (ADRs) are qualified.  Annaly Capital (NYSE: NLY) and American Capital Agency Corp(Nasdaq: AGNC) are among the many high-yielding REITs whose dividends don’t qualify for the 15% maximum rate.

REITs, MLPs, and foreign dividends are taxed at the rate of your ordinary income.  For most investors that means 25%, 28%, 33%, or 35% dividend tax depending on your income.

Tax bracket

AGNC after tax dividend yield

@ 19.5% market yield

NLY after tax dividend yield

@ 14.6% market yield

10%

17.55%

13.14%

15%

16.56%

12.41%

25%

14.63%

10.95%

28%

14.04%

10.51%

33%

13.07%

9.78%

35%

12.68%

9.49%

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Published in: on January 7, 2011 at 1:36 pm  Leave a Comment  

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