Are my distributions taxed at the ordinary income rate? Do I receive the benefit of depreciation?
The Fund is structured as a partnership for tax purposes. In a partnership, you are taxed based on your share of taxable income or loss from the Fund, rather than on actual cash distributions. The nature of income at the Fund-level determines whether the income will be taxed as ordinary income or capital gains.
The Fund will be investing through its REIT subsidiary, and distributions received from the REIT will be treated as either ordinary income, return of capital or capital gains. Distributions, to the extent that they are from current or accumulated earnings and profits, will generally be taxed as ordinary income. However, we anticipate that the depreciation available to the REIT subsidiary will reduce the amount of its taxable income and profit, and that this reduction will enable the REIT subsidiary to make distributions that will be treated as a return of capital. Any portion of the distribution that is in excess of current and accumulated earnings and profits is considered a return of capital for U.S. federal income tax purposes and will reduce the tax basis of the investment. Once your tax basis has been reduced to zero, any further distributions will result in capital gains.
Furthermore, for taxable years beginning after December 31, 2017 and before January 1, 2026, pursuant to the Tax Cuts and Jobs Act, individual…