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Special Report: Bush Tax Cut
by Lucas Everidge
The 2003 tax package signed into law late May includes significant changes to the tax code.
The official cost, under federal government accounting, is $350 billion, but proponents of the
bill declare that the benefits to the overall economy will greatly out-perform the costs.
Whether or not you accept the economic arguments, the new law includes big changes in
how the government collects revenue. The end result is almost everyone will see a change in
how their money goes to Uncle Sam.
REITS & Real Estate
The 2003 tax package may be a mixed blessing for the real estate industry.
Investors who own REIT stocks will not receive the tax break on dividends that other will - REITS do not currently pay corporate income taxes, therefore Congress exempted them. A REIT (Real Estate Investment Trust) is typically a publicly traded real-estate company that owns commercial property such as malls, apartment buildings and office buildings. REITs must pay out at least 90% of their taxable income as dividends to shareholders, which exempts them from taxes.
The most frequently heard virtue of REITs are their hefty dividends. They are often purchased by investors seeking income-producing stocks. According to Standard & Poor's in May, the average dividend of a REIT was 7%, versus 2% for the S&P stock index. The new tax laws could stimulate other sectors to increase or pay higher yields, bringing these stocks competition.
On the other hand, property owners will benefit from the capital-gains tax cut. The 2003 tax package
lowers the rate from 20% to 15%, which would free up capital for additional investment.