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.
Is it OK to hold REITs in a taxable account? ›
This makes them a great type of dividend investment to hold in tax-advantaged retirement accounts like traditional IRAs, Roth IRAs, and 401(k)s. In this scenario, you wouldn't need to keep track of the cost basis from ROC. It's also okay to own REITs in taxable accounts.
Is it a good idea to invest in REITs? ›
Are REITs Good Investments? Investing in REITs is a great way to diversify your portfolio outside of traditional stocks and bonds and can be attractive for their strong dividends and long-term capital appreciation.
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.
What are the pros and cons of REITs? ›
Real estate investment trusts reduce the barrier to entry for investors in the real estate market and provide liquidity, regular income and other perks. However, you'll be exposed to risks that aren't inherent in the stock market and dividends are subject to ordinary income tax.
Are REITs 90% taxable income? ›
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 long should you hold a reit? ›
REITs should generally be considered long-term investments
This is especially true if you're planning to invest in non-traded REITs since you won't be able to easily access your money until the REIT lists its shares on a public exchange or liquidates its assets. In many cases, this can take around 10 years to occur.
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.
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 I wish I knew before investing in REITs? ›
A lot of REIT investors focus too way much on the dividend yield. They think that a high dividend yield implies that a REIT is cheap and a good investment opportunity. In reality, it is often the opposite, and the dividend does not say much, if anything, about the valuation of a REIT.
Non-traded REITs have little liquidity, meaning it's difficult for investors to sell them. Publicly traded REITs have the risk of losing value as interest rates rise, which typically sends investment capital into bonds.
What I wish I knew before buying REITs? ›
REITs must prioritize short-term income for investors
“They pay out stable dividends, provided the properties are doing well,“ says Stivers, the financial advisor from Florida. In exchange for more ongoing income, REITs have less to invest for future returns than a growth mutual fund or stock.
How do I get my money out of a REIT? ›
While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value. Once a REIT is closed to the public, REIT companies may not offer early redemptions.
Can REITs pass through losses? ›
U.S. investors, however, were historically neutral, or even negatively biased, against the REIT entity due to the loss of pass-through losses and taxation at the highest tax rates.
Are REITs tax free in the US? ›
Overview. A REIT is taxable as a regular corporation, but is entitled to the dividends paid deduction.
How do REITs avoid double taxation? ›
Unlike many companies however, REIT incomes are not taxed at the corporate level. That means REITs avoid the dreaded “double-taxation” of corporate tax and personal income tax. Instead, REITs are sheltered from corporate taxes so their investors are only taxed once.
Do you pay taxes on dividends from REITs? ›
By default, all dividends distributed by a REIT are considered ordinary, or non-qualified, and are taxed as ordinary income. REIT dividends can be qualified if they meet certain IRS requirements.
What is one of the disadvantages of investing in a private REIT? ›
Cons of Investing in a Private REIT
On the flip side, private REITs typically have longer holding periods, which means your money may be tied up for an extended period. Additionally, they may lack the liquidity of publicly traded REITs, making it more challenging to sell your investment if needed.
Are REITs taxed as qualified dividends? ›
REIT dividends are not qualified because the IRS considers them as pass-through income. These are profits that get distributed to investors without the entity paying taxes first. REIT dividends pass to investors as ordinary income. The IRS taxes the dividends according to the individual investor's income tax rate.