REITS are popular ways to make money and produce high yields.
Of course, nothing’s better than shielding tax money from the Federal government, right? (If anyone from the gov is reading this, we're only kidding.) REITs generate returns from real estate assets and typically never owe taxes. Earnings are just passed onto investors in the form of dividends. Following the 2017 tax cuts, pass-through income got an even bigger tax break.
But that doesn’t stop people from wanting to shield even more money from Uncle Sam.
Enter the Captive REIT Trust.
What makes a Captive REIT Trust interesting is its structure. Basically, at the beginning of its formation, all of the properties in the REIT are taken from and then leased back to a corporation that doesn’t specialize in real estate management. This new Trust doesn’t even bother taking care of the properties. The corporation can then rent its own property, and deduct those costs on their income taxes.
In the first decade of the millennium, states took aim at companies that had been engaging in this practice. Regulators and politicians said that it was a way for companies to avoid income tax payments. They’re not wrong. But they probably all invest in real estates, so nothing will change.
Related or Semi-related Video
Finance: What is a Closed-End Fund?1 Views
Finance a la shmoop what is a closed-end fund? well it's a type of mutual fund [Man approaches mutual fund desk]
only like a bank at any convenient time it's closed
like its assets are enclosed in its price closed means that the fund itself
doesn't actively trade assets back and forth inside of it on a daily basis like
the most famous closed-end mutual fund in the world is Berkshire Hathaway [Man pushing pram of a baby with Berkshire Hathaway briefcase for a head]
Warren Buffett's you know other child the successful one it owns 40 or 50 key
assets from Geico to train companies to metal machinery firms in Israel to
boatloads of shares of stocks like coca-cola and Gillette and Wells Fargo
all of those assets are wrapped up in a tidy BRK bow and the stock market values [Stock market values appear]
ticker BRK daily by trading it back and forth among investors so yes the assets
inside of the fund do change but in an analogous mutual fund that is open the
value placed on the shares is at what is called net asset value, that value is
calculated by just adding up the 843 stocks at the mutual fund owns or however
many the number is and then just calculating a value based on the number [Calculation appears]
of share units comprising that open end mutual fund the closed-end fund has no
changes that way it's just investors valuing the whole bucket of investments
in one closed number now if you'll excuse us we have to get back to [Baby crying in a crib with Berkshire Hathaway briefcase for head]
babysitting for Warren Buffett isn't she just an angel
Up Next
What are mutual funds? Mutual funds are an aggregation of stocks, professionally managed for a "small" fee. Investors wanting exposure to a given a...
What is a 12b1 fee? A 12b1 fee is paid on mutual funds. The fee is paid by investors and is used to market the mutual fund to other potential inves...
A wrap account is an account that wraps into one annual fee all of the services you'd normally pay for a la carte at a given brokerage.
An omnibus account is an investment account in which a collection of investors have invested their capital to own a pro rata share of that cooperat...