Taxes & REIT Investment (2024)

REIT dividends can be taxed at different rates because they can be allocated to ordinary income, capital gains and return of capital. The maximum capital gains tax rate of 20% (plus the 3.8% Medicare Surtax) applies generally to the sale of REIT stock.

How do shareholders treat REIT dividends for tax purposes?

For REITs, dividend distributions for tax purposes are allocated to ordinary income, capital gains and return of capital, each of which may be taxed at a different rate. All public companies, including REITs, are required early in the year to provide shareholders with information clarifying how the prior year's dividends should be allocated for tax purposes. Ahistorical recordof the allocation of REIT distributions between ordinary income, return of capital and capital gains can be found in theIndustry Datasection.

Are REIT dividends subject to the maximum tax rate?

The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37% (returning to 39.6% in 2026), plus a separate 3.8% surtax on investment income. Taxpayers may also generally deduct 20% of the combined qualified business income amount which includes Qualified REIT Dividends through Dec. 31, 2025. Taking into account the 20% deduction, the highest effective tax rate on Qualified REIT Dividends is typically 29.6%.

However, REIT dividends will qualify for a lower tax rate in the following instances:

  • When the individual taxpayer is subject to a lower scheduled income tax rate;
  • When a REIT makes a capital gains distribution (20% maximum tax rate, plus the 3.8% surtax) or a return of capital distribution;
  • When a REIT distributes dividends received from a taxable REIT subsidiary or other corporation (20% maximum tax rate, plus the 3.8% surtax); and
  • When permitted, a REIT pays corporate taxes and retains earnings (20% maximum tax rate, plus the 3.8% surtax).

In addition, the maximum 20% capital gains rate (plus the 3.8% surtax) applies generally to the sale of REIT stock.

This chart showsthe U.S. withholding tax rate on REIT ordinary dividends paid to non-U.S. investors.

Taxes & REIT Investment (2024)


Top Articles
Latest Posts
Article information

Author: Nicola Considine CPA

Last Updated:

Views: 5243

Rating: 4.9 / 5 (49 voted)

Reviews: 88% of readers found this page helpful

Author information

Name: Nicola Considine CPA

Birthday: 1993-02-26

Address: 3809 Clinton Inlet, East Aleisha, UT 46318-2392

Phone: +2681424145499

Job: Government Technician

Hobby: Calligraphy, Lego building, Worldbuilding, Shooting, Bird watching, Shopping, Cooking

Introduction: My name is Nicola Considine CPA, I am a determined, witty, powerful, brainy, open, smiling, proud person who loves writing and wants to share my knowledge and understanding with you.