Are REIT Dividends Qualified? How REIT Dividends Are Taxed

Key takeaways

• Most REIT dividends are taxed as ordinary income. Only a small part, if any, counts as a "qualified dividend" eligible for the lower capital gains rates.
• The ordinary part usually counts as a "qualified REIT dividend." That part can get a deduction equal to 20% of the dividend under Section 199A. The 2025 tax law removed the deduction's end date.
• A REIT distribution often has several pieces: ordinary dividends, capital gain distributions and nondividend distributions (return of capital). Each piece is taxed differently.
• Return of capital isn't taxed when you get it. It lowers your cost basis, so more of the tax shows up when you sell.
• In an IRA, REIT dividends generally don't create unrelated business income tax, unless the shares were bought with borrowed money. You also lose the 199A deduction and the lower capital gains rates inside the account.
• Foreign investors face separate rules, including 30% withholding on many dividends and special treatment of gains from U.S. real estate.

Why do REITs pay out most of their income?

Let me start with the reason REIT dividends exist at all. It explains almost everything about how they are taxed.

A REIT, or real estate investment trust, is a company that owns, and usually runs, income-producing real estate or real estate loans. My guide to what a REIT is covers the basics. Here, we only need one fact about it. A REIT gets special tax treatment if it follows a set of rules in the tax code.

Under 26 U.S.C. §856, a REIT must be managed by trustees or directors and owned by 100 or more persons. At least 75% of the value of its total assets must be real estate assets. At least 75% of its gross income must come from real estate sources such as rents and mortgage interest.

The key rule for dividends sits in 26 U.S.C. §857. A REIT must pay dividends equal to at least 90% of its "real estate investment trust taxable income" each year. That is the 90% distribution rule.

What the REIT gets in return

In exchange, the REIT deducts the dividends it pays. A deduction is an amount subtracted from income before tax is figured. Because the REIT deducts what it pays out, it pays little or no corporate income tax on that money.

Any taxable income the REIT keeps is taxed at the regular corporate rate. So most REITs choose to pay out close to all of it. The SEC's investor site says "Most REITS pay out at least 100 percent of their taxable income to their shareholders."

What that means for you

The tax doesn't disappear. It moves from the company to you. A regular company pays corporate tax first, and then you pay a lower rate on its dividends. A REIT generally skips the corporate tax, so you pay ordinary rates on most of its dividends.

That trade is the whole story of REIT taxation in one sentence. The rest of this guide is the detail.

Why the 90% rule doesn't promise a dividend

People sometimes read the 90% rule as a promise of income. It isn't one.

The rule is tied to taxable income, not to cash or to a target yield. If rents fall, taxable income falls, and the required dividend falls with it. A REIT can also cut its dividend or stop paying. Distributions are not guaranteed.

Taxable income also isn't the same as cash flow. Depreciation lowers taxable income without using cash. So a REIT may pay out more cash than the 90% rule requires. Part of that extra cash often shows up on your tax form as a return of capital, which I explain below.

Are REIT dividends qualified dividends?

Mostly, no. This is the question behind the title of this guide, so let me answer it carefully.

The two meanings of "qualified"

The word "qualified" shows up in two different places. That causes a lot of confusion.

A qualified dividend is an ordinary dividend that can be taxed at the lower long-term capital gains rates of 0%, 15% or 20%. The IRS explains that "qualified dividends are those ordinary dividends that qualify to be taxed at lower capital gain rates." Dividends from most regular U.S. companies can be qualified dividends if you meet a holding-period rule.

A qualified REIT dividend is a different thing. It is a REIT dividend that can get the 20% deduction under Section 199A. The statute defines it as any REIT dividend that is not a capital gain dividend and is not qualified dividend income.

So the two terms are almost opposites. The same dollar of dividend can't be both.

Why most REIT dividends aren't qualified dividends

The lower rates on qualified dividends exist because the company already paid corporate tax on that profit. A REIT usually didn't, because it deducted the dividend.

The tax code reflects this. Under Section 857(c), only the portion of a REIT dividend "designated by the real estate investment trust" counts toward qualified dividend income. The IRS's Form 1099-DIV instructions list "Dividends paid by a real estate investment trust (REIT) that are not treated as qualified dividend income" among dividends that are not qualified.

Investor.gov puts it plainly. "Dividends paid by REITs generally are treated as ordinary income."

When part of a REIT dividend is qualified

A REIT can designate a slice of its dividend as qualified, but only within limits in Section 857(c)(2)(B). In general, that slice must tie back to income that was already taxed like a regular company's. Examples are qualified dividends the REIT itself received, or income the REIT paid corporate tax on the year before.

That slice is usually small. It shows up in box 1b of your Form 1099-DIV. You don't need to figure it out yourself. The REIT reports it.

Why that still isn't the end of the story

If the answer stopped there, REIT dividends would be taxed at up to 37% at the federal level. Section 199A changes that. For most investors, the ordinary part of a REIT dividend is a qualified REIT dividend, and it can get a 20% deduction.

How are REIT dividends taxed? Each piece of a distribution

A REIT distribution isn't one thing. At year-end, the REIT sorts what it paid you into categories. Each category goes in a different box on Form 1099-DIV, and each is taxed differently.

Here is how the main pieces compare at the federal level for 2026. Rates are the top rates. Your own rate may be lower.

The 3.8% net investment income tax can apply on top of every taxable line. I cover it below.

Ordinary dividends (box 1a)

Box 1a is the total of your ordinary dividends. It includes the amounts in box 1b and box 5. So don't add those boxes on top of box 1a. They are slices of it.

Section 199A dividends (box 5)

The instructions for box 5 say: "Enter the qualified REIT dividends paid by a REIT or section 199A dividends paid by a RIC to the recipient." A RIC, or regulated investment company, is the tax term for a fund such as a mutual fund or many ETFs. That means a fund that holds REITs can pass this label through to you.

This is the number your tax software or CPA uses for the 199A deduction.

Qualified dividends (box 1b)

This is the designated slice, if any, that gets capital gains rates. For most REITs it is small or zero.

Capital gain distributions (box 2a)

When a REIT sells a property at a gain, it can pass that gain to you as a capital gain dividend. Under Section 857(b)(3), a capital gain dividend is treated "as a gain from the sale or exchange of a capital asset held for more than 1 year." That's true no matter how long you have owned the shares. The IRS says these distributions "are always reported as long-term capital gains."

Unrecaptured Section 1250 gain (box 2b)

Part of a capital gain distribution can come from depreciation the REIT took on buildings. That part is called unrecaptured Section 1250 gain. It is taxed at your ordinary rate, but no more than 25%.

Nondividend distributions (box 3)

This is the return of capital piece. It has its own section below, because it works very differently.

The January dividend that counts for last year

Here's a quirk that trips people up. Under Section 857(b)(9), a dividend a REIT declares in October, November or December, payable to holders of record on a date in that month, is treated as paid on December 31 if the REIT actually pays it in January.

So a dividend that hits your account in January can show up on the prior year's Form 1099-DIV. The 1099-DIV instructions say to report it on the form for the year it was declared.

Undistributed capital gains (Form 2439)

Rarely, a REIT keeps a capital gain, pays the tax itself, and designates the gain to shareholders. Under Section 857(b)(3)(C), you then include the gain in income and are "deemed to have paid" the REIT's tax on it. You get a credit for that tax, and your basis in the shares goes up. The REIT reports this on Form 2439, not Form 1099-DIV.

How does the Section 199A deduction work for REIT dividends?

This is the most valuable rule for REIT investors, so it's worth getting right.

The basic rule

Section 199A allows a deduction for "qualified business income." It was written mainly for owners of businesses that are not corporations. But Congress added a separate piece for REIT dividends.

Under Section 199A(b)(1)(B), the deduction includes "20 percent of the aggregate amount of the" qualified REIT dividends you receive. You don't have to own a business. You only need to receive qualified REIT dividends.

Limits that don't apply

Business owners above certain incomes face extra limits based on the wages their business pays and the property it owns. The REIT dividend piece is different. The IRS says this component "is not limited by W-2 wages or the UBIA of qualified property." UBIA refers, roughly, to the original cost of a business's property.

So a high earner can generally take the full 20% on qualified REIT dividends. The deduction is also "available regardless of whether taxpayers itemize deductions," according to the same IRS page.

Limits that do apply

There are three you should know about.

1. The taxable income cap. Under Section 199A(a), the total deduction can't exceed 20% of your taxable income minus your net capital gain. If most of your income is long-term gains, the deduction can shrink.
2. The holding period. Under Treasury Regulation §1.199A-3, a dividend doesn't count if you held the shares "for 45 days or less" during the 91-day period that starts 45 days before the ex-dividend date. The ex-dividend date is the first day a buyer of the shares no longer gets the next dividend.
3. Losses from partnerships. If you have losses from publicly traded partnerships, they can reduce this part of the deduction. The Form 8995 instructions explain how a negative amount carries forward to offset qualified REIT dividends in later years.

Where you claim it

You claim the deduction on Form 8995 or Form 8995-A. For 2025 returns, the Form 8995 instructions say you can use the simpler Form 8995 if your taxable income before the deduction is $394,600 or less if married filing jointly, or $197,300 or less for other returns. Above that, you use Form 8995-A.

It lowers taxable income, not AGI

The deduction comes after your adjusted gross income, or AGI, is figured. Under 26 U.S.C. §63(b), taxable income is AGI minus the standard deduction and "any deduction provided in section 199A," among other items.

That matters because many tax rules key off AGI or a version of it. The 199A deduction won't lower those.

It doesn't lower the 3.8% tax

The net investment income tax, or NIIT, is a 3.8% tax on investment income for higher earners. Under 26 U.S.C. §1411, it applies to the lesser of your net investment income or your income above $250,000 for joint filers or $200,000 for most single filers. Dividends are included.

Under Treasury Regulation §1.199A-1(e)(3), the 199A deduction "does not reduce" net investment income under Section 1411. So you figure the 3.8% tax on the full REIT dividend, before the 20% deduction.

What the 2025 tax law changed

The One Big Beautiful Bill Act is the tax law signed on July 4, 2025, as Public Law 119-21, according to the IRS. Before it passed, Section 199A was set to end. The old text said, "This section shall not apply to taxable years beginning after December 31, 2025."

The 2025 law replaced that subsection. Cornell's copy of Section 199A shows that Section 70105 of the law rewrote subsection (i). It now provides a minimum deduction for some active business owners instead of an end date. The law also widened the income phase-in ranges for business owners. Those changes apply to tax years beginning after December 31, 2025.

For REIT investors, the main result is simple. The 20% deduction for qualified REIT dividends no longer has a scheduled end date. The percentage stayed at 20%. Congress can still change it in a future law.

What the deduction is worth

At the top 37% bracket, the 20% deduction cuts the federal rate on qualified REIT dividends to 29.6%. That's 37% × 80%. Add the 3.8% NIIT where it applies, and the top combined federal rate is about 33.4%.

For 2026, Revenue Procedure 2025-32 puts the start of the 37% bracket at $768,700 of taxable income for married couples filing jointly and $640,600 for single filers. In the 24% bracket, the deduction brings the rate on these dividends to about 19.2%.

A worked example: one year of REIT distributions

This is a hypothetical example with round numbers. It doesn't represent any REIT, fund or offering, and the split of the distribution isn't typical of any real company. It isn't tax advice.

The setup

Say a married couple files jointly in 2026. Their taxable income puts them in the 24% bracket. Their income is high enough that the 3.8% NIIT applies to all their investment income.

They own REIT shares in a regular taxable brokerage account. During the year, they receive $10,000 in cash. Their Form 1099-DIV shows:

• Box 1a, ordinary dividends: $7,000
• Box 1b, qualified dividends: $500 (part of box 1a)
• Box 5, Section 199A dividends: $6,500 (part of box 1a)
• Box 2a, capital gain distributions: $1,000
• Box 2b, unrecaptured Section 1250 gain: $300 (part of box 2a)
• Box 3, nondividend distributions: $2,000

Check the math. $7,000 + $1,000 + $2,000 = $10,000, which matches the cash they got.

The federal tax

The NIIT line uses $8,000, not $6,700. That's because the 199A deduction doesn't reduce net investment income. The return of capital isn't income this year, so it stays out of the NIIT too.

What the deduction saved

Without the 199A deduction, the $6,500 would be taxed at 24%, for $1,560. With it, the tax on that piece is $1,248. The deduction saved $312 in this example.

What the return of capital does

The $2,000 return of capital isn't taxed this year. But it lowers the couple's basis in the shares by $2,000. I show what that does at sale in the next section.

What is return of capital, and why does it matter?

Return of capital is the common name for what the IRS calls a nondividend distribution. It's the part of a distribution that isn't paid out of the REIT's earnings and profits, a tax measure of its profit. It shows up in box 3 of Form 1099-DIV.

Why REITs pay it

Real estate depreciation is a big expense on paper. It lowers a REIT's earnings for tax purposes, but no cash leaves the building. So a REIT can have more cash to distribute than it has earnings. The extra is often reported as return of capital.

Return of capital can also come from less comfortable sources. The SEC's bulletin on non-traded REITs warns that "Non-traded REITs may use offering proceeds, which includes the money you invested, and borrowings to pay distributions." When that happens, part of your "income" is your own money coming back. My guide to non-traded REITs explains how to read where distributions come from.

How it's taxed

The IRS says a nondividend distribution "reduces the adjusted cost basis of your stock." Your basis is your tax cost in the shares. It starts as what you paid.

Once your basis reaches zero, "any further nondividend distribution is a taxable capital gain," according to the same IRS page.

A hypothetical example

Say you buy REIT shares for $50,000. For five years, each year's distribution includes $2,000 of return of capital. That's $10,000 total, so your basis drops to $40,000.

You then sell the shares for $55,000. Your gain is $55,000 − $40,000 = $15,000. If there had been no return of capital, your gain would have been $5,000.

So return of capital doesn't erase tax. It delays it, and it can change its character. The delayed piece is usually taxed as capital gain when you sell, often at a lower rate than ordinary income. If you hold until death, the step-up in basis may wipe out the deferred gain under current law.

Don't read it as a sign of strength

A high return of capital share can mean heavy depreciation, which is normal for real estate. It can also mean the REIT is paying out more than it earns. Look at the REIT's reports to see which it is.

Are reinvested REIT dividends taxed?

Yes. A dividend reinvestment plan, or DRIP, uses your dividends to buy more shares instead of paying you cash. The tax treatment doesn't change because you never touched the money.

The IRS says that with reinvested dividends, "you must report the dividends as income along with any other ordinary dividends." If the plan lets you buy shares at a discount, you report the fair market value of the shares on the payment date as dividend income.

Keep the records

Each reinvestment is a small purchase with its own basis. Over ten years, that can mean 40 or more lots of shares. Your broker usually tracks this. If you hold shares directly with a transfer agent, keep the statements yourself. Otherwise you could pay tax twice on the same money when you sell.

Return of capital still applies

Return of capital also lowers basis on reinvested shares. That's one more reason to rely on your broker's cost-basis records rather than your own estimate.

How are REIT dividends taxed in an IRA or other retirement account?

Retirement accounts change the picture. The REIT still sends a Form 1099-DIV, but it goes to the account, not to you.

Traditional IRA

Inside a traditional IRA, dividends aren't taxed each year. You pay tax when you take money out. The IRS says your withdrawals "will be included in your taxable income," with exceptions for amounts that were already taxed.

That cuts both ways. You defer tax on the dividends. But you lose the 199A deduction and capital gains rates on any part of the dividend, because withdrawals are taxed as regular income no matter where the money came from.

Roth IRA

In a Roth IRA, qualified withdrawals generally aren't taxed. The REIT's dividend categories stop mattering. You aren't required to take withdrawals from a Roth IRA while you are alive, according to the same IRS page.

Taxable account

In a regular brokerage account, you pay tax each year, as in the worked example. But you get the 199A deduction, capital gains rates on box 2a, and tax-deferred return of capital.

How the three compare

On that last row, Section 1411(c)(5) says net investment income doesn't include distributions from IRAs and similar plans.

Which account fits depends on your bracket now and later, your other holdings, and how long you'll hold. I explore that more in my guide to REITs in a portfolio. Your CPA can run your numbers.

Do REIT dividends create UBIT in an IRA?

Usually not. But there's one common way to trigger it.

What UBIT is

Unrelated business income tax, or UBIT, is a tax on certain business income earned by tax-exempt organizations. The IRS's Publication 598 lists IRAs among the accounts it covers, including "traditional IRAs, Roth IRAs." The income it taxes is called unrelated business taxable income, or UBTI.

Why REIT dividends are usually excluded

Under 26 U.S.C. §512(b)(1), UBTI excludes "all dividends, interest, payments with respect to securities loans" and similar investment income. REIT dividends are dividends. So in an ordinary IRA that buys REIT shares with its own cash, they generally aren't UBTI.

The exception: borrowed money

Section 512(b)(4) overrides that exclusion for "debt-financed property." Under 26 U.S.C. §514, that means property "held to produce income and with respect to which there is an acquisition indebtedness." Acquisition indebtedness is debt used to buy or improve the property.

So if an IRA buys REIT shares with borrowed money, part of the dividends can become UBTI. The share is based on how much of the cost was borrowed. Most IRA investors never face this, but it's worth checking in a self-directed account.

Borrowing inside an IRA also has its own rules. Under 26 U.S.C. §408(e)(4), if you use the account as security for a loan, that portion is treated as distributed to you.

The filing threshold

The current Instructions for Form 990-T say the trustee of an IRA, including a Roth IRA, must file Form 990-T if the IRA has gross income of $1,000 or more from a regularly conducted unrelated trade or business, and that "A custodian is treated as a trustee." Ask your IRA custodian how it files the form and how any tax is paid.

Self-directed IRAs

A self-directed IRA is an IRA whose custodian lets you hold assets beyond stocks and funds, such as private REIT shares or real estate. The same UBIT rules apply. Before buying any private real estate security in an IRA, ask the sponsor whether the investment uses debt in a way that could create UBTI. Ask your custodian how it handles Form 990-T.

Which state taxes your REIT dividends?

States set their own rules, so this answer varies more than the federal one.

Where the income is taxed

A REIT dividend is a dividend from a company, not rent from a building. Many states treat dividends differently from rent earned inside the state, but the rules are each state's own. That's one of the differences my guide on DSTs vs. REITs covers. A Delaware Statutory Trust, or DST, is a trust that owns one or a few properties. Ask your CPA which state or states can tax your REIT dividends and your DST income.

The 199A deduction at the state level

The 199A deduction is a federal deduction. It comes after AGI on the federal return. Whether your state allows anything like it depends on that state's law. Many states start their own math from a federal income figure and then make their own changes. Don't assume the 20% deduction carries over.

States with no income tax

If your state has no individual income tax, your REIT dividends generally face federal tax only. Ask your CPA how your state treats each box on Form 1099-DIV.

How are REIT dividends taxed for foreign investors?

This section is for investors who are not U.S. citizens or residents. U.S. tax rules for foreign investors are complex, and treaties change the answer for many countries. Treat this as a map, not a plan.

Ordinary dividends

Under 26 U.S.C. §871(a)(1), a nonresident alien individual generally owes a 30% tax on U.S.-source dividends that aren't connected with a U.S. trade or business. The IRS's withholding page says a reduced rate, including exemption, may apply under a tax treaty. The payer usually withholds the tax.

Gains from U.S. real estate: FIRPTA

FIRPTA, the Foreign Investment in Real Property Tax Act, lets the U.S. tax foreign persons on sales of U.S. real property interests. The IRS says the withholding rate on those sales "generally is 15%."

REITs are covered too. Under 26 U.S.C. §897(h)(1), a REIT distribution to a foreign investor that comes from the REIT's gain on selling U.S. real estate is generally treated as gain from selling U.S. real property. That can bring U.S. filing duties.

Key exceptions

• Small holders of listed REITs. The FIRPTA rule for distributions doesn't apply to a holder of a publicly traded class of stock who owned 10% or less of that class at any time during the one-year period ending on the distribution date. Section 897(k)(1)(B) sets the 10% figure for REITs. Instead, under Section 857(b)(3)(E), that distribution is generally treated as an ordinary REIT dividend, which can be subject to the 30% tax described above.
• Domestically controlled REITs. Under Section 897(h)(2), an interest in a "domestically controlled" REIT isn't a U.S. real property interest. That means foreign persons held less than 50% of its stock by value during the testing period. This rule affects the sale of the shares, not distributions.
• Certain pension funds and qualified shareholders. Sections 897(k) and 897(l) give special treatment to certain foreign pension funds and "qualified shareholders."

If you are a foreign investor, work with a tax professional who knows both U.S. law and your home country's treaty.

REIT dividends vs. regular dividend stocks

People often compare REITs with other income stocks. Here is how the tax side differs. This table doesn't compare returns or say which is better.

The point isn't that one is better. A REIT's income goes through one layer of tax, mainly at your level. A regular company's income often goes through two layers, one at the company and one at yours.

How to read your REIT tax forms, step by step

When your forms arrive, here is a simple order to work through them with your CPA.

Step 1: Wait for the corrected forms

A REIT may not know the final split of its distributions until after year-end, and brokers sometimes send corrected 1099s. Filing too early can mean amending later.

Step 2: Find box 1a and box 5

Box 1a is the total ordinary dividend. Box 5 is the part eligible for the 199A deduction. Both feed different parts of your return.

Step 3: Check the holding period

If you bought or sold shares near a dividend date, check whether you held them more than 45 days in the 91-day window. If not, that dividend doesn't count toward the deduction, even if it's in box 5.

Step 4: Find boxes 2a and 2b

These are capital gain distributions. They go to your capital gains calculations, with the 2b part capped at 25%.

Step 5: Record box 3 against your basis

Box 3 isn't income this year. Write it down against the shares that paid it. Your broker usually adjusts basis, but check it.

Step 6: Look for Form 2439

If a REIT kept and taxed a capital gain on your behalf, you'll get Form 2439. It brings a credit for tax already paid.

Step 7: Figure the 199A deduction

Use Form 8995 or 8995-A. Watch the taxable-income cap and any partnership loss carryforward.

Step 8: Figure the 3.8% NIIT

Use the full dividend, before the 199A deduction.

Step 9: Check your state return

Find out whether your state follows any of the federal rules above. Most of the differences show up here.

Mistakes to avoid with REIT dividend taxes

These are common errors. Each one can cost money or time.

1. Assuming REIT dividends are qualified dividends. Most aren't. Plan on ordinary rates, softened by the 199A deduction.
2. Adding box 5 or box 1b to box 1a. They're part of box 1a. Double-counting overstates your income.
3. Forgetting the 199A deduction. It's easy to miss if you don't own a business. Check box 5 every year.
4. Trading around dividend dates. Holding shares 45 days or less in the 91-day window can cost you the deduction.
5. Treating return of capital as untaxed income. It isn't income now, but it lowers your basis. The tax comes later.
6. Losing basis records on reinvested dividends. Each reinvestment is a purchase. Without records, you may overpay at sale.
7. Using borrowed money in an IRA without advice. Debt can turn dividends into UBTI, and pledging the IRA as security for a loan is treated as a distribution of that amount. Ask your custodian and CPA first.
8. Assuming the state follows federal rules. The 199A deduction is federal. Your state may not allow it.
9. Reading a high yield as a sign of strength. A large payout can include return of capital or be funded by borrowing. Distributions are not guaranteed.
10. Filing before corrected forms arrive. REIT forms are sometimes revised. Waiting can save an amended return.
11. Thinking the 2025 law locked in the REIT dividend deduction forever. It removed the 199A end date. Congress can still change the rule.

How REIT taxes connect to DSTs and UPREIT units

Baker 1031 offers DSTs, which are built for investors doing 1031 exchanges. A 1031 exchange lets you sell investment real estate and buy other real estate while deferring the tax. So it's worth explaining how REIT taxes connect to that path.

A DST interest can qualify as replacement property in a 1031 exchange. REIT shares cannot, because they are stock. My DST guide covers how DSTs work. DST investors don't get a Form 1099-DIV. They report their share of the property's income and expenses on their own return.

Some DSTs include a path into a REIT through a 721 exchange. That's a contribution of property to a partnership for an ownership interest in it, which generally defers tax. In real estate, the partnership is usually a REIT's operating partnership, or OP. The OP owns the REIT's buildings. Investors receive OP units, which are partnership interests that usually track REIT shares in value and distributions. My 721 exchange guide explains the full path.

What changes on your tax forms

The forms change at each stage.

A Schedule K-1 is the form a partnership sends each partner to report its share of income. Converting OP units into REIT shares is generally a taxable event. So the dividend rules in this guide usually matter only after that step. My guide to operating partnership units explains the conversion and its tax.

My background is in applied mathematics and applied statistics, and I've been involved in more than $10 billion of real estate investment activity. Baker 1031 offers DSTs, including some with 721 paths. It doesn't sell REIT shares. If a DST with a 721 option is on your list, you can review the DST offerings I currently have available.

What my data shows

My records track DST offerings, not REIT shares. But they show how often a DST investor may end up holding REIT units, and later perhaps REIT shares that pay the dividends this guide covers. Here is what my offering records as of October 2026 show, across 76 DST offerings from 38 sponsors. These figures describe the offerings I track. They aren't a forecast or a promise about any future offering.

The 721 path is common

The headline number is this one. In my offering records as of October 2026, 44 offerings (58%) have an optional 721 exit and 13 (17%) make it mandatory. If the option is used, an investor in those programs gets OP units and a K-1, not a REIT 1099-DIV. The dividend rules in this guide come into play only if the investor later converts units into REIT shares.

Distributions are reported differently

In my offering records as of October 2026, the median projected year-1 distribution rate is 4.7%, with a range of 4.0% to 9.0%, across the 71 offerings that published one. Those are projections, not guaranteed results.

A DST's distribution isn't a dividend. The investor reports a share of rents, expenses and depreciation instead. So a 4.7% projected DST distribution and a 4.7% REIT dividend could lead to very different tax bills. Compare after-tax income, not headline rates.

Frequently asked questions

Are REIT dividends qualified dividends?

Mostly, no. REIT dividends are generally taxed as ordinary income, and only a portion the REIT designates, shown in box 1b, gets the lower capital gains rates. The ordinary part is usually a "qualified REIT dividend" that can get the 20% Section 199A deduction instead.

What does box 5 on my Form 1099-DIV mean?

Box 5 shows Section 199A dividends, which are qualified REIT dividends or the matching amount passed through by a fund. It's already included in box 1a, so don't add it again. It's the number used to figure your 20% deduction on Form 8995 or 8995-A.

Is the 199A deduction for REIT dividends still available after 2025?

Yes, under current law. The 2025 tax law, signed July 4, 2025, replaced the subsection that would have ended Section 199A after 2025, and the REIT dividend percentage stayed at 20%. Congress can change the rule again in a future law.

Do I need to own a business to take the 199A deduction on REIT dividends?

No. The REIT dividend part of the deduction is separate from the business part, and it isn't limited by W-2 wages or business property. It is still capped at 20% of your taxable income minus net capital gain.

Why is part of my REIT distribution called a return of capital?

A REIT often distributes more cash than its earnings for tax purposes, mostly because depreciation lowers earnings without using cash. The extra is a nondividend distribution in box 3. It isn't taxed now, but it lowers your basis, so you pay more tax when you sell.

Are reinvested REIT dividends taxed?

Yes. The IRS treats reinvested dividends as if you received the cash and then bought shares. Keep records of each reinvestment, because each one adds to your basis.

Do REIT dividends in an IRA create UBIT?

Generally not, because dividends are excluded from unrelated business taxable income. The main exception is shares bought with borrowed money, which can make part of the dividends taxable as debt-financed income. If gross unrelated business income is $1,000 or more, the IRA must file Form 990-T.

Does the 3.8% net investment income tax apply to REIT dividends?

It can. Dividends count as net investment income, and the 199A deduction does not reduce that amount. The tax applies only above $250,000 of income for joint filers or $200,000 for most single filers.

Which state taxes my REIT dividends?

It depends on your state's rules, and many states look first to where you live. Your state may not allow anything like the federal 199A deduction. Ask your CPA how your state treats each part of the 1099-DIV.

How are REIT dividends taxed for foreign investors?

Ordinary REIT dividends are generally subject to a 30% U.S. tax, which a treaty may reduce. Distributions that come from a REIT's gains on selling U.S. real estate can be treated as real property gains under FIRPTA. Holders of 10% or less of a listed class of REIT stock generally avoid that FIRPTA treatment, but those gain distributions are then treated as ordinary dividends.

Why did I get a REIT dividend in January that counts for last year?

A REIT dividend declared in October, November or December and paid in January is treated as paid on December 31. It shows up on the prior year's Form 1099-DIV. That's why your January deposit may not match the year on your form.

Do OP units get a Form 1099-DIV?

No. OP units are partnership interests, so you get a Schedule K-1 each year instead. You'd get a Form 1099-DIV only after converting units into REIT shares, which is generally a taxable event.

Before you act

This guide is for education only and isn't tax, legal or investment advice. Tax law changes, and your facts matter. Confirm every decision with your CPA and attorney, and with your qualified intermediary (the independent company that holds your sale proceeds during a 1031 exchange) if one is involved. REIT and DST investments carry risk, including loss of principal; distributions are not guaranteed. Securities are offered through Aurora Securities, Inc., member FINRA/SIPC.

Sources

• 26 U.S.C. § 856, Definition of real estate investment trust (Cornell LII)
• 26 U.S.C. § 857, Taxation of real estate investment trusts and their beneficiaries (Cornell LII)
• 26 U.S.C. § 199A, Qualified business income, with Pub. L. 119-21 amendment notes (Cornell LII)
• 26 U.S.C. § 63, Taxable income defined (Cornell LII)
• 26 U.S.C. § 1411, Net investment income tax (Cornell LII)
• 26 U.S.C. § 512, Unrelated business taxable income (Cornell LII)
• 26 U.S.C. § 514, Unrelated debt-financed income (Cornell LII)
• 26 U.S.C. § 871, Tax on nonresident alien individuals (Cornell LII)
• 26 U.S.C. § 897, Disposition of investment in United States real property (Cornell LII)
• 26 CFR § 1.199A-1, Operational rules (Cornell LII)
• 26 CFR § 1.199A-3, Qualified business income, qualified REIT dividends and qualified PTP income (Cornell LII)
• IRS, Instructions for Form 1099-DIV
• IRS, Instructions for Form 8995
• IRS, Topic No. 404, Dividends
• IRS, Qualified business income deduction
• IRS, One, Big, Beautiful Bill provisions
• IRS, Revenue Procedure 2025-32 (2026 inflation adjustments)
• IRS, Stocks (options, splits, traders) FAQ 2: reinvested dividends
• IRS, Retirement topics: Required minimum distributions
• 26 U.S.C. § 408, Individual retirement accounts (Cornell LII)
• IRS, Instructions for Form 990-T (2025)
• IRS, Publication 598, Tax on Unrelated Business Income of Exempt Organizations
• IRS, FIRPTA withholding
• IRS, Withholding on nonresident aliens and foreign entities
• Investor.gov, Real Estate Investment Trusts (REITs)
• Investor.gov, Investor Bulletin: Non-traded REITs