8-KOther Events

DIGITAL REALTY TRUST, INC. 8-K Report, Corporate Update (Feb 25, 2011)

Filed February 25, 2011For Securities:DLRDLR-PJDLR-PKDLR-PL

Summary

This 8-K filing by Digital Realty Trust, Inc. (DLR) on February 25, 2011, primarily serves to supplement existing disclosures regarding United States Federal Income Tax Considerations within their Form S-3 registration statement. The update clarifies the tax treatment of dividends and capital gains for both corporate and non-corporate taxpayers, particularly in light of upcoming changes scheduled for 2013. For investors, the key takeaway is the specific treatment of REIT dividends, which are generally not eligible for the lower qualified dividend income tax rate, with exceptions for dividends attributable to earnings taxed at the corporate/REIT level or designated as capital gain dividends. The filing also alerts investors to a potential future increase in capital gains tax rates and the introduction of an additional 3.8% tax on certain investment income for individuals, estates, and trusts starting in 2013.

Key Highlights

  • 1Supplemental tax information provided for U.S. Federal Income Tax Considerations.
  • 2Clarifies that REIT dividends are generally not eligible for the 15% qualified dividend income tax rate.
  • 3Exceptions to the REIT dividend tax treatment include dividends from taxable REIT subsidiaries or those attributable to corporate-level taxed income.
  • 4Highlights that certain capital gain dividends may be taxed at a 25% rate.
  • 5Informs investors of potential tax rate increases scheduled for 2013, including a rise in capital gains tax to 20% and ordinary dividend rates to the then-applicable ordinary income rate.
  • 6Mentions an additional 3.8% tax on investment income for certain U.S. holders (individuals, estates, trusts) starting in taxable years after December 31, 2012.
  • 7Advises U.S. holders to consult their tax advisors regarding the implications of these tax changes.

Frequently Asked Questions

The main purpose of this 8-K filing is to supplement the 'United States Federal Income Tax Considerations' section of Digital Realty Trust's existing Form S-3 registration statement. It provides updated information and clarifications on how dividends and capital gains are taxed for investors.

Generally, dividends paid by Digital Realty Trust, as a REIT, are not eligible for the preferential 15% tax rate on qualified dividend income. Instead, they are typically taxed at ordinary income tax rates. However, there are exceptions, such as if the dividends are designated as 'capital gain dividends' or are attributable to income that was already taxed at the corporate or REIT level.

Investors should be aware of two significant potential tax changes scheduled for taxable years beginning after December 31, 2012: the maximum capital gains tax rate is scheduled to increase from 15% to 20%, and the tax rate for ordinary dividends will increase. Additionally, a new 3.8% surtax on certain investment income is set to apply to individuals, estates, and trusts.

No, this filing explicitly states that the provided tax discussion is for general information only and does not constitute tax advice. Investors are strongly advised to consult with their own tax advisors to understand how these tax considerations specifically affect their investment in Digital Realty Trust.