8-KOther Events

ESSEX PROPERTY TRUST, INC. 8-K Report, Corporate Update (Feb 28, 2013)

Filed February 28, 2013For Securities:ESS

Summary

This 8-K filing by Essex Property Trust, Inc. (ESS) from February 28, 2013, provides updated tax information for investors, primarily concerning the impact of the American Taxpayer Relief Act of 2012 (2012 Tax Relief Act) and the Foreign Account Tax Compliance Act (FATCA). The filing supersedes prior tax disclosures and clarifies how recent legislation affects the taxation of dividends and capital gains for shareholders. Notably, while the 2012 Tax Relief Act lowered maximum tax rates on capital gains and qualified dividends for non-corporate taxpayers, ordinary REIT dividends from ESS will generally continue to be taxed at ordinary income rates. The filing also introduces potential implications of FATCA, effective from 2014, which could impose a 30% withholding tax on dividends and certain proceeds from the sale of ESS stock for foreign investors unless specific disclosure requirements are met.

Key Highlights

  • 1Disclosure supersedes prior tax information provided in the March 6, 2012, prospectus supplement regarding federal income tax considerations.
  • 2The American Taxpayer Relief Act of 2012 (effective January 1, 2013) lowered maximum tax rates for non-corporate taxpayers to 20% for capital gains and qualified dividends, and 39.6% for ordinary income.
  • 3Ordinary REIT dividends from Essex Property Trust will generally continue to be taxed at ordinary income rates, not the lower qualified dividend rate, as they are typically distributed from REIT taxable income.
  • 4The 20% maximum rate will generally apply to capital gains from the disposition of ESS shares and to distributions designated as long-term capital gain dividends (subject to exceptions like unrecaptured Section 1250 gain).
  • 5The Foreign Account Tax Compliance Act (FATCA), with final regulations issued January 17, 2013, will impose a 30% withholding tax on dividends paid to foreign financial institutions and other foreign entities after December 31, 2013, unless they comply with information reporting requirements.
  • 6FATCA will also impose a 30% withholding tax on certain gross proceeds from the disposition of ESS common stock paid after December 31, 2016, to foreign entities unless they provide required U.S. owner information.
  • 7The Patient Protection and Affordable Care Act of 2010 introduces a 3.8% Medicare tax on net investment income for certain individuals, trusts, and estates for taxable years beginning after December 31, 2012.

Frequently Asked Questions

The 2012 Tax Relief Act lowered maximum tax rates for individuals on capital gains and qualified dividends to 20%. However, for Essex Property Trust, ordinary REIT dividends will generally still be taxed at the higher ordinary income rates (up to 39.6%). The lower 20% rate will primarily apply to gains from selling your ESS shares or to distributions specifically designated as long-term capital gains by the company (with some exceptions).

FATCA is a U.S. law that aims to prevent tax evasion by U.S. persons holding investments offshore. For foreign investors in Essex Property Trust, FATCA, effective from January 1, 2014, could result in a 30% withholding tax on dividends and, from December 31, 2016, on certain proceeds from selling ESS stock, unless the foreign financial institutions or entities provide information about their U.S. account holders or owners to the IRS.

The 3.8% Medicare tax applies to certain individuals, trusts, and estates on their net investment income, which can include dividends and capital gains. If your modified adjusted gross income exceeds certain thresholds and your dividends or capital gains from ESS are considered net investment income (and not derived from a trade or business), you may be subject to this additional tax for taxable years beginning after December 31, 2012. It is recommended to consult with a tax advisor.

This filing primarily addresses how the company's distributions are taxed to shareholders, particularly in light of recent legislation. Essex Property Trust itself is elected to be taxed as a Real Estate Investment Trust (REIT), which means it generally does not pay U.S. federal income tax on the portion of its taxable income or capital gains that it distributes to its stockholders. The changes discussed are to clarify the tax implications for investors receiving those distributions.