FAQs
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.
How do I avoid taxes on REIT? ›
Avoiding REIT dividend taxation
If you own REITs in an IRA, you won't have to worry about dividend taxes each year, nor will you have to pay taxes in the year in which you sell a REIT at a profit. In a traditional IRA, you won't owe any taxes until you withdraw money from the account.
Should I hold REITs in taxable accounts? ›
REITs and REIT Funds
Real estate investment trusts are a poor fit for taxable accounts for the reason that I just mentioned. Their income tends to be high and often composes a big share of the returns that investors earn from them, as REITs must pay out a minimum of 90% of their taxable income in dividends each year.
Does a REIT file a tax return? ›
Generally, a REIT must file its income tax return by the 15th day of the 4th month after the end of its tax year.
What is the 90% rule for REITs? ›
To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
How much of REIT income is taxed? ›
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.
Are there tax benefits to owning REITs? ›
Tax benefits of REITs
Current federal tax provisions allow for a 20% deduction on pass-through income through the end of 2025. Individual REIT shareholders can deduct 20% of the taxable REIT dividend income they receive (but not for dividends that qualify for the capital gains rates).
What is the best account to hold a REIT in? ›
These trusts primarily pay through dividends and generally don't appreciate in value significantly. Because of their high dividend yield, holding a REIT in your Roth IRA or health savings account is generally the most tax-efficient strategy.
Where is the best place to hold a REIT? ›
Is a Roth or traditional IRA the best choice? To be clear, retirement accounts are ideal places to hold REIT investments, as the benefits of tax-deferred investing can magnify the already tax-advantaged nature of these companies.
How are REIT dividends reported to IRS? ›
If you own shares in a REIT, you should receive a copy of IRS Form 1099-DIV each year. This tells you how much you received in dividends and what kind of dividends they were: Ordinary income dividends are reported in Box 1. Qualified dividends in Box 1b.
A REIT cannot be closely held. A REIT will be closely held if more than 50 percent of the value of its outstanding stock is owned directly or indirectly by or for five or fewer individuals at any point during the last half of the taxable year, (this is commonly referred to as the 5/50 test).
What is bad income for REIT? ›
In order for an entity to maintain REIT status, it is subject to a series of quarterly and yearly tests, including two income tests: a 75% test and a 95% test. If the REIT has too much non-qualifying income it is at risk of failing these tests.
What is the 75 gross income test for REITs? ›
In order to meet the 75% test, at least 75% of a REIT's gross income must be derived from the following: Rents from real property. Interest on obligations secured by mortgages on real property or on interests in real property. Gain from the sale or other disposition of real property.
What is the REIT 10 year rule? ›
For Group REITs, the consequences of leaving early apply when the principal company of the group gives notice for the group as a whole to leave the regime within ten years of joining or where an exiting company has been a member of the Group REIT for less than ten years.
What is a good amount to invest in REIT? ›
The Cheapest Option: REITs—$1,000 to $25,000 or more
These are securities and are traded on major exchanges like stocks. They invest in real estate directly, either through property purchases or through mortgage investments.
How much of my retirement should be in REITs? ›
“I recommend REITs within a managed portfolio,” Devine said, noting that most investors should limit their REIT exposure to between 2 percent and 5 percent of their overall portfolio. Here again, a financial professional can help you determine what percentage of your portfolio you should allocate toward REITs, if any.
Are REITs taxed in a Roth IRA? ›
Typically, REIT dividends are taxed individually as ordinary income, but you can avoid the tax burden if your investment grows within a Roth IRA. Investment earnings are tax-free in a Roth IRA – including REIT dividends — so you may end up keeping significantly more of your earnings than you would with a REIT alone.
How are non-traded REITs taxed? ›
Like exchange-traded REITs, non-traded REITs are subject to the same IRS requirements that include returning at least 90% of taxable income to shareholders. Investors tend to seek exchange-traded and non-traded REITs for their income distribution.
