Understanding REMIC Taxation
Statement: REMIC removes double taxation since the REMIC is not directly taxed, but investors have to pay tax on income derived from REMIC.
Question: Why is this a tax benefit if the investor still has to pay tax on income generated from REMIC? What is the double taxation with REMIC (what is the 2nd taxation and how does REMIC remove that?) Who creates or owns REMIC - I thought bondholders/investors all own a portion of REMIC altogether? The structure of this is a little confusing to me and would be really grateful for someone's explanation!
This just like the tax benefit of REIT status, no corporate income tax (that is the tax removed), then the shareholders/bond holders/unit holders/etc. pay tax on the dividend received at ordinary rates. By contrast, if say you own shares of bank, the bank would pay corporate income tax on their net income, and then you would pay tax on dividends received, so taxed at both levels. With a REMIC or REIT status entity, it just flows through (technical term is "pass through"), same as with partnerships (which is what REIT and REMIC are trying to match for fairness).
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