On January 27, 2020, Royal Oak Realty Trust (Royal Oak) announced tax treatment for 2019 dividends paid. For the fifth consecutive year, less than one-third of Royal Oak’s income will be taxable as ordinary income. The taxability of Royal Oak’s dividends paid during the 2019 calendar year is 32.26% as ordinary income (with the balance being deferred as a return of capital).

Assuming a Royal Oak investor received $10,035 in dividends paid during 2019 (6.69% dividend yield on $150,000), the investor will be taxed for 2019 on only $3,237, while $6,798 will be considered a return of capital and not currently taxed. Additionally, as a reminder, as a result of the Tax Cut and Jobs Act (Tax Reform) that passed in December 2017, qualified REIT dividends are eligible for a 20% federal deduction per section 199A of the tax code. Using the same example from above, for the $3,237 of 2019 taxable income, an investor can also deduct $647 (20%) from federal taxes, reducing 2019 taxable income to $2,590. Assuming a top federal tax rate of 37% and an estimated state tax rate of 4%, the investor would be taxed $1,088 on the $10,035 of 2019 Royal Oak dividends received.

The portion treated as a return of capital is considered tax deferred as it reduces the investor’s tax basis in the investment. As such, the capital gain will be larger at the time the investment is sold (unless there is a basis step-up due to death).

Please note: this information is not investment, financial, legal, or tax advice as each investor’s situation varies.