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I would like to invest in REITs for their high yield, but would like to avoid their tax complexities. If I buy exposure to REITs through an ETF or mutual fund, will that abstract away the need to do RoC calculations and constantly adjust my basis for when I sell? While these calculations may not be that bad for a single REIT, if you have many small positions in a number of them, doing the accounting paperwork will be a major burden.

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  • Dunno if it's REIT officially, but one of my funds is real-estate based and the only way in which its mechanics differ from my other funds is that the numbers I need for tax returns are delayed several months while all the transactions settle out. Annoying, nothing more. Other funds may, of course, behave differently.
    – keshlam
    Commented Jul 27, 2015 at 22:36
  • what's the yield? Commented Jul 27, 2015 at 22:47
  • Variable, like any fund. I'm deliberately leaving that open and not making this an answer because i'm just giving an existence proof. You still want/need to do your own research to establish whether any particular investment meets your needs.
    – keshlam
    Commented Jul 27, 2015 at 22:51
  • My REIT allocation (and bond allocation) is 100% within my tax deferred retirement accounts. My taxable has individual stocks and a legacy mutual fund from my grandparents.
    – user662852
    Commented Jul 28, 2015 at 0:42
  • Since you asked about tax law, you should probably tell us what country's law you're asking about?
    – littleadv
    Commented Jul 28, 2015 at 2:17

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Yes, a REIT mutual fund (such as Vanguard's) alleviates the need to do these return-of-basis calculations yourself, since the fund computes them for you. As keshlam mentioned, one of the drawbacks is that you usually don't get your 1099 for the fund until about a month after you receive all your other 1099s.

Another drawback is that all the fancy accounting the fund has to do usually results in significant non-qualified dividends. For example, in 2014 my REIT fund's dividends were 96.6% non-qualified, which means they were taxed at my marginal tax rate instead of the greatly reduced qualified dividend rate. I believe (though I may be wrong since I've never done it) that a REIT you own directly will shed more of its profits to you as short-term capital gains, which you would then at least have the opportunity to offset with other capital losses before paying your full marginal tax rate on them.

(Alternatively you could of course stick all your REITs/REIT funds in tax-advantaged accounts. See one of my favorite links, Principles of tax-efficient fund placement, for a fuller discussion.)

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  • Is your REIT fund a mutual fund or ETF? Commented Aug 11, 2015 at 18:23
  • Mine is a mutual fund, but it has an equivalent ETF.
    – dg99
    Commented Aug 11, 2015 at 20:29

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