Due to the recent bear market, I harvested a huge amount of capital losses (six-digit figure) which I can use to offset against capital gains and income in future years. The offset against capital gains is uncapped, but that against income is capped at $3000 a year.
With that in mind, investments that primarily throw off capital gains have become much more attractive to me (since my previously harvested tax-losses can be used to completely offset against these distributions, i.e. essentially tax-free). There are however very few investments that intrinsically throw off capital gains rather than dividends. (Note: Funds that actively turn over their portfolio, hereby producing capital gains, do not count.)
Nevertheless, there is a class of investments that do intrinsically produce capital gains. These are timber REITs. Generally, the dividends that timber REITs distribute are considered as long-term capital gains, instead of the more common dividend income distributed by general REITs.
The three most common timber REITs, all of which only produced distributions that were classified as capital-gains last year, are
- Potlatch Corporation (PCH).Â Current dividend 9.3%.
- Plum Creek Timer (PCL). Current dividend 5.9%.
- Rayonier Inc. (RYN). Current divident 6.8%.
I always held an interest in timber investing. Several years ago, I had invested in PCL for a while before forgoing it. Given the new background scenario, I tweaked my portfolio last month to allocate a small portion into the above three timber REITs. (Disclaimer: Please do your own due diligence if you want to invest in the above securities.)
I shall not elaborate on the pros and cons of timber investing in this post. Instead, I shall leave the links to various discussions / resources on timber investing: