What is the 20% pass-through tax deduction?
Since the Fund’s distributions all originate at the REIT subsidiary, investors are subject to a special deduction that allows you to deduct up to 20% of your taxable distributions from the Fund on an annual basis. An investor in the highest tax bracket who is eligible for this deduction can effectively reduce the federal tax rate on this income from 37% to 29.6%. Below is an example:
| Item | Amount | Calculation |
|---|---|---|
| Taxable Distribution Income: | $100,000 | |
| 20% Deduction | $20,000 | |
| Taxable Income | $80,000 | |
| Taxes Before the 20% Pass-Through Deduction | $37,000 | $100,000*37% |
| Tax Rate | 37% | |
| Taxes After 20% Pass-Through Deduction | $29,600 | $80,000*37% |
| Effective Tax Rate | 29.6% |