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Investment Solutions

Tax Efficiency

Tax-advantaged investment solutions aim to help investors keep more of what they earn

  • Investors are potentially facing significant changes to the U.S. tax code
  • Cohen & Steers provides access to specialized strategies with inherent tax efficiencies
  • Learn more about new opportunities to potentially increase take-home income

Potential Tax Benefits Across Asset Classes

Preferred Securities
  • Historically offer some of the highest income rates within investment-grade fixed income, from generally high-quality issuers
  • Distributions mostly treated as qualified dividend income (QDI) rather than interest, taxed at a top rate of 20% vs. 37%(1)
  • A wide range of security structures, including many with low durations, that may reduce sensitivity to changing interest rates
REITs
  • Designed for efficient delivery of rental income to investors, taxed only once at the shareholder level
  • 20% deduction on ordinary income distributions from REITs as qualified business income (QBI), reducing the top tax rate from 37% to 29.6%(1)
  • Three “flavors” of tax-advantaged income: QBI, capital gains and return of capital

Insights

Multi Strategy

Two tax-smart income alternatives

Strategies with inherent tax efficiencies may help investors diversify sources of income and potentially keep more of what they earn.

Read More

Types of income

Cohen & Steers provides access to specialized asset classes that offer the potential for attractive income, with inherent tax advantages to help investors keep more of the income they earn—both today and under any changes in tax policy likely to occur in the next few years.

Income type

Tax rate at highest bracket(2)

Comes from

Applies to

Biden campaign proposed tax changes

Ordinary
income

37%(1)

Wages, salary, commissions and interest

Corporate bonds and
U.S. Treasuries

Increase to 39.6%; would reduce after-tax yields for most fixed income securities, potentially increasing the appeal of preferred QDI distributions

Qualified business income (QBI)

29.6%(1)

Ordinary income; 20% deduction on pass-through vehicles

REITs

QBI pass-through deduction potentially adjusted with any increase in the corporate tax rate; could be eliminated for high-income taxpayers

Capital
gains

20%(1,3)

Net gain from the sale of assets; REITs pass these gains through to shareholders

REITs

Increase to 39.6% for $1M+ earners
Qualified
dividend income (QDI)

20%(1)

Dividends paid by U.S. and certain foreign corporations (excludes REITs)

Preferreds

Increase to 39.6% for $1M+ earners; relative advantage of preferred securities paying QDI would increase for most investors
Return of
capital (ROC)

0%

Deferred Capital Gain

Generated by non-cash deductions from investment activities, no immediate
liability but reduces cost basis

REITs

No change

At December 31, 2020. Source: Internal Revenue Service, Biden campaign statements, Cohen & Steers.
(1) Additional 3.8% Medicare surcharge applies for certain U.S. taxpayers.  (2) As of 2020 tax year, taxable income of more than $518,401 (individuals) or $622, 051 (married filing jointly). (3) A portion may be taxed at 25%.

Videos

Listed Real Estate

REITs offer 3 flavors of tax advantaged income

5:28
Preferred Securities

Preferred securities answer the call for tax-efficient income

4:49
Preferred Securities

Tax-smart income for rising rates

5:19
Preferred Securities

Accessing Tax-Advantaged Income with Preferred Securities

5:58
Listed Real Estate

REITs: Three Flavors of Tax-Efficient Income

2:44
REITs offer 3 flavors of tax advantaged income
Preferred securities answer the call for tax-efficient income
Tax-smart income for rising rates
Accessing Tax-Advantaged Income with Preferred Securities
REITs: Three Flavors of Tax-Efficient Income

Stay Informed

We regularly post our expert insights on tax efficiency and all things related to investing. Sign up to receive customized insights, videos, and education resources.

Important Disclosures

This information is provided for informational purposes only, and should not be construed as legal or tax advice. You should consult your legal or tax advisor regarding your individual circumstances.

The views and opinions are as of the date of publication and are subject to change without notice. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice and is not intended to predict the performance of any investment. We consider the information to be accurate, but we do not represent that it is complete or should be relied upon as the sole source of appropriateness for investment. There is no guarantee that any historical trend illustrated above will be repeated in the future, and there is no way to predict precisely when such a trend will begin. There is no guarantee that a market forecast set forth in this commentary will be realized.

Please consider the investment objectives, risks, charges and expenses of any Cohen & Steers fund carefully before investing. A summary prospectus and prospectus containing this and other information may be obtained free of charge, by visiting cohenandsteers.com or by calling 800.330.7348. Please read the summary prospectus and prospectus carefully before investing.

Risks of investing in Real Estate Securities
The risks of investing in real estate securities are similar to those associated with direct investments in real estate, including falling property values due to increasing vacancies or declining rents resulting from economic, legal, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and be less liquid than larger companies. No representation or warranty is made as to the efficacy of any particular strategy or fund, or the actual returns that may be achieved.

Risks of Investing in Preferred Securities
Investing in any market exposes investors to risks. In general, the risks of investing in preferred securities are similar to those of investing in bonds, including credit risk and interest-rate risk. As nearly all preferred securities have issuer call options, call risk and reinvestment risk are also important considerations. In addition, investors face equity-like risks, such as deferral or omission of distributions, subordination to bonds and other more senior debt, and higher corporate governance risks with limited voting rights.

Risks associated with preferred securities differ from risks inherent with other investments. In particular, in the event of bankruptcy, a company’s preferred securities are senior to common stock but subordinated to all other types of corporate debt. Throughout this presentation we will make comparisons of preferred securities to corporate bonds, municipal bonds and 10- Year Treasury bonds. It is important to note that corporate bonds sit higher in the capital structure than preferred securities, and therefore in the event of bankruptcy will be senior to the preferred securities. Municipal bonds are issued and backed by state and local governments and their agencies, and the interest from municipal securities is often free from both state and local income taxes. 10-Year Treasury bonds are issued by the U.S. government and are generally considered the safest of all bonds since they’re backed by the full faith and credit of the U.S. government as to timely payment of principal and interest.

Preferred funds may invest in below investment-grade securities and unrated securities judged to be below investment-grade by the Advisor. Below investment-grade securities or equivalent unrated securities generally involve greater volatility of price and risk of loss of income and principal, and may be more susceptible to real or perceived adverse economic and competitive industry conditions than higher grade securities.

Contingent capital securities (sometimes referred to as “CoCos”) are debt or preferred securities with loss absorption characteristics built into the terms of the security, for example a mandatory conversion into common stock of the issuer under certain circumstances, such as the issuer’s capital ratio falling below a certain level. Since the common stock of the issuer may not pay a dividend, investors in these instruments could experience a reduced income rate, potentially to zero, and conversion would deepen the subordination of the investor, hence worsening the investor’s standing in a bankruptcy. Some CoCos provide for a reduction in the value or principal amount of the security under such circumstances. In addition, most CoCos are considered to be high yield or “junk” securities and are therefore subject to the risks of investing in below-investment-grade securities. No representation or warranty is made as to the efficacy of any particular strategy or fund or the actual returns that may be achieved.

Duration Risk
Duration is a mathematical calculation of the average life of a fixed-income or preferred security that serves as a measure of the security’s price risk to changes in interest rates (or yields). Securities with longer durations tend to be more sensitive to interest rate (or yield) changes than securities with shorter durations. Duration differs from maturity in that it considers potential changes to interest rates, and a security’s coupon payments, yield, price and par value and call features, in addition to the amount of time until the security matures. Various techniques may be used to shorten or lengthen the Fund’s duration. The duration of a security will be expected to change over time with changes in market factors and time to maturity.

Cohen & Steers Capital Management, Inc. (Cohen & Steers) is a registered investment advisory firm that provides investment management services to corporate retirement, public and union retirement plans, endowments, foundations and mutual funds.

Cohen & Steers U.S. registered open-end funds are distributed by Cohen & Steers Securities, LLC and are only available to U.S. residents.

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Cohen & Steers is a global investment manager specializing in liquid real assets, including real estate securities, listed infrastructure, commodities and natural resource equities, as well as preferred securities and other income solutions.

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By choosing this option, you acknowledge that you will be shown information on Cohen & Steers funds offered outside the United States. The information is intended only for use by institutional and professional investors outside the United States and their advisors. This information is not intended for retail investors in jurisdictions in which these funds are not authorized for distribution or in which the dissemination of information regarding the funds is not permitted.

You also acknowledge that you will be shown information on Cohen & Steers funds offered inside the United States. These funds have not been authorized for distribution in any country outside the United States and are not available for purchase by non-US persons, who may experience adverse tax consequences as a result of such investment.

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