7885. How is a REIT shareholder taxed when he or she sells, exchanges, or redeems shares?Nuco Employeercline212014-10-01T15:25:00Z2014-10-01T15:25:00Z25463118Summit Business Media257365714Site Map/Investments/Mutual Funds, ETFs, Hedge Funds, Unit Trusts, REITs/Real Estate Investment TrustsTaxFactsDefaultArticle122111181-00-tf2.xml1181.00;#1903;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How is a REIT shareholder taxed when he sells, exchanges, or redeems his shares?43200.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T22:58:47Z7885. How is a REIT shareholder taxed when the shareholder sells, exchanges, or redeems shares?When a shareholder (or owner of a beneficial interest) sells, exchanges, or redeems shares, the shareholder will generally have a capital gain or loss. The capital gain or loss will be short-term if the shares were held for one year or less; it will be long-term if the shares were held for more than one year. See Q 527 and Q 530 for the treatment of capital gains and losses, including the lower rates for capital gains incurred on or after May 6, 2003—now permanent under ATRA for tax years beginning after 2012. However, if a loss is realized on the sale of shares held less than six months, such loss must be treated as long-term loss to the extent of any capital gains dividend received on those shares during such period. (This 6-month period is tolled during any time that the shareholder’s risk of loss with respect to the shares is reduced through certain option contracts, short sales, or offsetting positions in substantially similar property.) A limited exception will, however, be provided by regulation for sales pursuant to a periodic liquidation plan.IRC Sec. 857(b)(7).The gain or loss is the difference between the shareholder’s adjusted tax basis in the shares and the amount realized from the sale, exchange, or redemption (which includes money plus the fair market value of any property received. See Q 521.IRC Sec. 1001.If a shareholder’s shares in the REIT were acquired on the same day and for the same price, the shareholder will have little difficulty in establishing tax basis and holding period of the shares sold, exchanged, or redeemed. However, if the shares were acquired at different times or prices, the process is more difficult; unless the shareholder can “adequately identify” the lot from which the shares being sold or exchanged originated, the shareholder must treat the sale or exchange as disposing of the shares from the earliest acquired lots (i.e., by a first-in, first-out (FIFO) method). If the earliest lot purchased or acquired is held in a stock certificate that represents multiple lots of stock, and the taxpayer does not adequately identify the lot from which the stock is sold or transferred, the stock sold or transferred is charged against the earliest lot included in the certificate.Treas. Reg. §1.1012-1(c). In connection with reporting sales of securities to the IRS, brokers will be obligated to provide the customer’s basis in, and holding period for, shares sold, and brokers must use the principles just described to determine which shares were sold (i.e., FIFO if the shares cannot be adequately identified).IRC Sec. 6045(g). The “average basis” methods discussed in Q 7857 for mutual fund shares are not available to REIT shareholders. For an explanation of how shares may be “adequately identified,” see Q 528.See Q 7603 and Q 7604 for the income tax consequences upon the disposition of a position that is held as part of a conversion transaction.