Should a REIT Sell or Claim Inflation Reduction Act Tax Credits?

Although generally taxable as domestic corporations, REITs (unlike C corporations) usually do not have income tax liabilities because REITs (unlike C corporations) can reduce their taxable incomes (often to zero) by claiming a dividends paid deduction for the dividends paid to their shareholders. This gives REITs a greater incentive to sell income tax credits under the Inflation Reduction Act, which in turn can help REITs finance the activities that generated such credits.

But REITs should not overlook the possibility that in certain circumstances the credits may be better claimed against a REIT’s income tax liabilities than sold at a discount. ...