On January 25, 2022, Royal Oak Realty Trust (Royal Oak) announced tax treatment for 2021 dividends paid. The taxability of Royal Oak’s dividends paid during the 2021 calendar year is 41.54% as ordinary income. The balance, 58.46%, is deferred as a return of capital.

When we meet with investors, we always express that there are tax advantages to our dividend. We often compare the Royal Oak dividend with other investment opportunities that have no tax advantages and are fully taxable at ordinary income rates. We call this the Tax Equivalent Yield. The Tax Equivalent Yield for 2021 was 9.47%. This means an investor would need to have purchased a fully taxable investment that yielded 9.47% in 2021 to be equivalent to the average 6.495% yield Royal Oak paid in 2021 (this assumes the investor pays tax at the top federal tax bracket of 37% and an estimated state tax rate of 4%).

The portion treated as a return of capital is considered tax deferred as it reduces the tax basis in your Royal Oak 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.