How Are REIT Dividends Taxed?

How Are REIT Dividends Taxed? Real Estate Investment Trusts (REITs) have become increasingly popular among investors looking to diversify their portfolios and generate passive income.

One of the key benefits of investing in REITs is the potential for regular dividend payments. However, it’s important to understand how these dividends are taxed to make informed investment decisions.

In this article, we’ll break down the basics of how REIT dividends are taxed in simple terms.

How Are REIT Dividends Taxed

How Are REIT Dividends Taxed?

What a REIT is

First, let’s quickly recap what a REIT. is A REIT is a company that owns, operates, or finances income-generating real estate.

These properties can include office buildings, shopping centers, apartment complexes, and even hospitals.

By investing in a REIT, you indirectly own a portion of these real estate assets and can benefit from the rental income they generate.

How the dividends from REITs are taxed

Now, let’s dive into how the dividends from REITs are taxed. Unlike regular companies, REITs are required by law to distribute a significant portion of their taxable income to shareholders in the form of dividends.

These dividends are subject to specific tax rules.

REIT dividends fall into two categories

REIT dividends fall into two categories: ordinary dividends and qualified dividends.

Ordinary dividends

Ordinary dividends are taxed at the individual’s ordinary income tax rates, which vary depending on the individual’s income level.

This means that the dividends you receive from a REIT are generally taxed at the same rates as your regular income, such as your salary or wages.

Qualified dividends

On the other hand, qualified dividends are taxed at a lower rate, similar to the rates applied to long-term capital gains.

To qualify for this lower tax rate, certain conditions must be met. Firstly, the REIT must meet specific criteria set by the Internal Revenue Service (IRS).

Additionally, you, as the shareholder, must hold the REIT shares for a minimum period of time, typically 90 days or more during the so-called “holding period.” If these conditions are met, the dividends may be eligible for the lower tax rate.

return of capital

It’s worth noting that a portion of the REIT dividends may also be classified as return of capital. This happens when the dividend amount exceeds the REIT’s taxable income.

Return of capital is not immediately taxable but reduces the shareholder’s cost basis in the REIT shares. When the shares are eventually sold, the return of capital is subject to capital gains tax.

Report your REIT dividends

To ensure compliance with tax regulations and accurately report your REIT dividends, it’s crucial to keep track of the information provided by the REIT.

They typically provide an annual Form 1099-DIV, which summarizes the dividend payments made to you throughout the year.

This form will outline the different components of the dividends, including ordinary dividends, qualified dividends, and return of capital.

Qualified tax professional or financial advisor

It’s important to consult with a qualified tax professional or financial advisor to fully understand the tax implications of investing in REITs.

They can help you navigate the complexities of the tax code and make informed decisions that align with your financial goals.


In conclusion, REIT dividends are taxed differently from ordinary company dividends. They can be classified as ordinary dividends or qualified dividends, each subject to their own tax rates.

Additionally, a portion of the dividends may be considered return of capital, which has different tax implications.

By understanding these tax rules and seeking professional advice, you can effectively manage your REIT investments and maximize your after-tax returns.

You might want to read Dividend Aristocrats: The Best Long-Term Investment for Steady Returns

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