How Are REIT Dividends Taxed in 2026?
Based on IRS Revenue Procedure 2025-32 · U.S. federal tax only · Not tax advice
REIT dividends are taxed differently from regular stock dividends. Most REIT distributions are taxed as ordinary income rather than at the lower qualified dividend rate. Here's how each type of REIT distribution is taxed, what the Section 199A deduction means for you, and how to keep more of your REIT income.
Short answer: Most REIT dividends are generally taxed at ordinary income rates (up to 37%), not the lower qualified dividend rate. However, the Section 199A deduction lets you deduct 20% of qualified REIT dividends from your taxable income, bringing the effective top federal rate down to roughly 29.6%. High earners may also owe the 3.8% net investment income tax (NIIT), and state taxes may apply. This deduction is now permanent as of 2025. Your actual rate depends on your tax bracket, income level, and account type.
This guide covers U.S. federal tax rules only. State and local taxes vary and are not covered here. Your individual tax situation depends on your income, filing status, deductions, and other factors — consult a qualified tax advisor for advice specific to you. Full disclaimer
What Is a REIT?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. To qualify as a REIT, a company must distribute at least 90% of its taxable income to shareholders as dividends. There are three main types:
Equity REITs
Own and operate real estate properties like apartments, offices, malls, and warehouses. Income comes primarily from tenant rent. This is the most common type.
Mortgage REITs
Finance real estate by originating or purchasing mortgages and mortgage-backed securities. Income comes from interest on loans rather than rent.
Hybrid REITs
Combine both strategies — owning properties and holding mortgages. Less common, but offer exposure to both rental income and interest income.
The tax rules below apply to all types of REITs. The key difference is the mix of distributions you receive — equity REITs tend to pay more ordinary dividends and return of capital, while mortgage REITs lean toward ordinary income from interest.
A growing subset of equity REITs focuses on environmentally responsible properties. If sustainability matters to your strategy, see our guide to sustainable dividend stocks — which includes ESG-oriented REITs alongside other income-focused equities.
Why REIT Dividends Are Taxed Differently
Understanding why helps make sense of the rules.
REITs Don't Pay Corporate Tax
Regular corporations pay corporate income tax on their profits, then shareholders pay a second tax on dividends. To compensate for this double taxation, qualified dividends get a lower tax rate (0%, 15%, or 20%). REITs avoid corporate-level tax by distributing at least 90% of taxable income to shareholders. Nareit explains that since the income is only taxed once (at the shareholder level), it doesn't get the lower qualified rate.
The Income Comes from Rent, Not Corporate Profits
Most REIT income is generated from rent payments on properties. This rental income is classified as ordinary income and passes through to shareholders as ordinary dividends. That's different from a company like Apple or Coca-Cola, which pays dividends from profits that have already been taxed at the corporate level.
The 4 Types of REIT Distributions
Not all REIT dividends are taxed the same way. Your 1099-DIV will break down your distributions into these categories.
Ordinary Dividends
Tax rate: Up to 37%Most REIT dividends fall here. Taxed at your ordinary income tax rate, not the lower qualified dividend rate. However, you may be able to deduct 20% of this income under Section 199A.
Reported on: Form 1099-DIV, Box 1aQualified Dividends (Rare for REITs)
Tax rate: 0%, 15%, or 20%A small portion of REIT dividends may qualify for the lower capital gains tax rate, though this is uncommon for most REITs. It typically occurs when a REIT earns income through taxable REIT subsidiaries (TRS) or receives qualified dividends from other corporations it holds stock in — not from its core rental operations. Note: qualified dividends (Box 1b) are different from Section 199A dividends (Box 5) — the former get a lower tax rate, while the latter get a 20% deduction from ordinary income.
Reported on: Form 1099-DIV, Box 1bCapital Gains Distributions
Tax rate: Generally 0–20%When a REIT sells properties or assets at a profit, it may pass those gains to shareholders. These are generally taxed at long-term capital gains rates (0%, 15%, or 20%). However, a portion may be classified as unrecaptured Section 1250 gain (taxed at up to 25%) if the REIT sold depreciated real estate.
Reported on: Form 1099-DIV, Box 2aReturn of Capital
Tax rate: DeferredGenerally not immediately taxed. Instead, it reduces your cost basis in the REIT shares. You typically pay tax later when you sell the shares (as capital gains). If your cost basis reaches zero, any further return of capital is generally taxed as capital gains.
Reported on: Form 1099-DIV, Box 3Note: The rates above are federal only. Depending on your state, you may also owe state and local income tax on REIT dividends. Additionally, high earners may owe the 3.8% net investment income tax (NIIT) on top of their regular rate. Your total effective tax rate will depend on your specific income, filing status, and state of residence.
The Section 199A Deduction: 20% Off Your REIT Taxes
This is the single biggest tax benefit for REIT investors and the reason REIT taxation isn't as unfavorable as it first appears.
Example: How the 199A Deduction Works
At the 24% federal tax bracket, you'd owe roughly $960 in federal tax on $4,000 instead of $1,200 on the full $5,000 — about $240 saved. At the top 37% bracket, the savings are even larger. State taxes and NIIT (if applicable) would be additional.
REIT vs Stock Dividend Tax Calculator
Compare the after-tax income from REIT dividends vs regular stock dividends
Most U.S. stock dividends from established companies are qualified and taxed at lower capital gains rates (0-20%). Select non-qualified only for foreign stocks, short-term holdings (<60 days), or certain preferred stocks.
Based on these assumptions, you may pay approximately $960 more in federal taxes with REIT dividends, keeping approximately $960 less after taxes. However, REITs typically offer higher yields (often 4-8% vs 1-3% for stocks), which can more than offset this tax difference.
Note: Most U.S. stock dividends are qualified, so REITs are typically less tax-efficient than regular stock dividends on a per-dollar basis—but more efficient than non-qualified dividends. The higher yields REITs offer often result in greater total after-tax income despite the higher tax rate.
- 2026 federal ordinary income tax brackets
- 2026 federal capital gains tax brackets (graduated)
- Standard deduction ($32,200 for married filing jointly)
- Section 199A deduction (up to 20% for REIT dividends, assuming full eligibility)
- Net Investment Income Tax (3.8% for high earners)
- State and local income taxes (can be significant)
- Alternative Minimum Tax (AMT)
- Itemized deductions or adjustments to income
- Other income sources affecting marginal rates
- Section 199A phase-outs, income limitations, or wage/property tests
- Dividend yield differences (REITs typically yield 2-3x more than stocks)
This calculator compares tax rates per dollar of dividend, not total return on investment. Your actual tax liability will vary based on your complete tax situation. This is a directional estimate only—always consult a qualified tax professional or CPA for advice specific to your circumstances.
REIT Dividends vs. Regular Stock Dividends: Example
A static example showing how the tax treatment compares for a $10,000 dividend at the 24% income tax bracket. For your own numbers, use the calculator above.
| Regular Stock Dividend | REIT Dividend | |
|---|---|---|
| Dividend Received | $10,000 | $10,000 |
| Tax Classification | Qualified dividend | Ordinary income |
| Tax Rate Applied | 15% | 24% (ordinary) |
| 199A Deduction | None | -$2,000 (20%) |
| Taxable Amount | $10,000 | $8,000 |
| Tax Owed | $1,500 | $1,920 |
| After-Tax Income | $8,500 | $8,080 |
At the 24% bracket, the difference is relatively small ($420 on $10,000) thanks to the 199A deduction. REITs also tend to offer higher dividend yields than regular stocks, which can more than offset the tax difference. Assumes the 15% long-term capital gains rate applicable at the 24% income bracket.
Real-World Examples by Income Bracket
See how REIT dividend taxation works at different income levels (assumes $5,000 in REIT dividends, single filer).
NIIT (Net Investment Income Tax) of 3.8% applies to investment income for single filers earning over $200,000. These examples show federal tax only — state and local taxes would be additional.
2026 Federal Income Tax Brackets
Since most REIT dividends are taxed as ordinary income, your tax bracket determines how much you owe. Brackets are adjusted annually for inflation — here are the 2026 thresholds.
| Tax Rate | Single Filer | Married Filing Jointly |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | $12,401 - $50,400 | $24,801 - $100,800 |
| 22% | $50,401 - $105,700 | $100,801 - $211,400 |
| 24% | $105,701 - $201,775 | $211,401 - $403,550 |
| 32% | $201,776 - $256,225 | $403,551 - $512,450 |
| 35% | $256,226 - $640,600 | $512,451 - $768,700 |
| 37% | Over $640,600 | Over $768,700 |
Source: IRS Revenue Procedure 2025-32. Tax brackets are adjusted annually for inflation.
Holding REITs in Tax-Advantaged Accounts
Since REIT dividends face higher tax rates, many investors consider holding them in IRAs or 401(k)s. Here's the trade-off for each account type.
Traditional IRA / 401(k)
REIT dividends grow tax-deferred. You don't owe taxes until you withdraw funds in retirement.
All withdrawals are taxed as ordinary income. You lose the Section 199A deduction.
Roth IRA / Roth 401(k)
REIT dividends grow tax-free. Qualified withdrawals in retirement owe zero tax.
You lose the Section 199A deduction. Contributions are made with after-tax dollars.
Taxable Brokerage
You can claim the Section 199A deduction (20% off). No withdrawal restrictions.
REIT dividends are taxed annually as ordinary income (though reduced by 199A).
The right choice depends on your tax bracket, time horizon, and overall portfolio. Track your REIT holdings across all account types with a portfolio tracker to monitor your total allocation and dividend income.
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Disclaimer: This page is for informational and educational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex and change frequently. The information presented here reflects U.S. federal tax law as of early 2026 and may not account for subsequent legislative changes, IRS guidance, or your state's tax rules. State and local taxes are not covered. Your individual tax situation will vary based on your income, filing status, deductions, and other factors. Always consult a qualified tax advisor or CPA to get advice specific to your situation before making investment or tax decisions. Do not rely solely on this guide — verify all information independently with authoritative sources such as the IRS, Nareit, or your tax professional.
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