How Are REIT Dividends Taxed?

The Basics of REIT Taxation

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An REIT is a real estate investment trust. When you invest in an REIT, you’re investing in a real estate firm managing commercial or residential properties, such as a shopping mall or apartment complex. Some REITs come with high returns and dividends, but they may also be considered riskier investments. This passive investing method is often popular when real estate markets boom, but it’s important to understand the tax structure before committing to this investment option.

There are three types of REITs:

  1. Equity: Earns money from rent, dividends, and capital gains from property sales
  2. Mortgage: Earns money from interest
  3. Hybrid: Combination of both equity and mortgage REIT

In all three, investors receive regular dividends—profit sharing payments from the real estate firms paid monthly, quarterly, or annually. Investors are required to pay taxes on dividends, and the majority of REIT dividends are taxed at ordinary income rates.


Capital gains taxes can also apply when you invest in a REIT.

Let’s walk through everything you need to know about REITs, how they’re taxed, and how to set yourself up for success when investing in a REIT that pays dividends.

How REIT Dividends Are Taxed

To qualify as a REIT, the company must have at least 90% of its taxable income distributed to shareholders annually, in the form of dividends. The REIT can then deduct all of those dividends that it paid to shareholders from its corporate taxable income. This means that most REITs pay out at least 100% of their taxable income to shareholders. This makes it likely that REITs pay no corporate taxes since those earnings are passed through to shareholders in the form of dividends.

Taxation at the Individual-Investor Level

As an investor in a REIT, this taxation setup offers you the advantage of only paying taxes on dividends and capital gains once. Most dividends are taxed at your ordinary income tax rate.


Some dividends are considered qualified dividends, which enjoy a discounted tax rate. However, only some REIT dividends fall into this category.

When paying taxes on REITs, you’ll receive Form 1099-DIV from any REITs you’re invested in during tax season. This form will have a breakdown of dividends received that you can plug into any tax software service or send to your tax professional. This breakdown will include regular income distributions (taxed at your ordinary income tax rate) as well as any capital gains earnings (taxed at a capital gains tax rate).

Ordinary Income Distributions

For dividends categorized as ordinary income, the rate at which you are taxed will vary based on your income and tax bracket. For example, if your taxable income was $50,000 in 2021, you’d be taxed at a rate of 22% for ordinary income distributions paid that year.

You are also eligible to deduct up to 20% of qualified business income from your taxes on the portion of qualified REIT dividends that are considered ordinary income and not interest. For example, let’s say you’re in the 22% tax bracket. You have 100 shares in Company ABC REIT and the dividends you receive that are categorized as ordinary income distributions are $2 per share, for a total of $200 (100 x 2 = 200). With the 20% qualified business income deduction, you’d only pay taxes on $160 of that ordinary income distribution ($200 x 20% = $40, $200 - $40 = $160). 

Capital Gains Earnings

There are short-term and long-term capital gains tax rates. When it comes to REITs, capital gains are taxed at long-term rates regardless of how long you’ve had money invested in a REIT. Long-term capital gains tax rates range from 0% to 20%. The capital gains tax rate you pay will vary depending on your income. For example, if your taxable income was between $40,001 to  $441,450 in 2021, your capital gains tax rate would be 15%.

Return of Capital

You may also see your REIT dividends categorized as return of capital. This means the REIT is basically giving you back some of the money you invested. You won’t pay taxes on these dividends now, but they reduce your cost basis, and you may have a potentially larger capital gains tax to pay later if/when you sell your REIT shares.

How To Invest in REITs

If you’re interested in investing in REITs, you can do so through a traditional or online broker. A few examples of fund REITs include:

  • Vanguard REIT ETF (VNQ)
  • Fidelity Real Estate Index Fund (FSRNX)
  • S&P Global REIT (SREITGUP)

You can also invest in REITs directly. For example, these REITs are available for direct investments:

  • Brandywine Realty Trust (BDN)
  • Innovative Industrial Properties (IIPR)
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI)
  • Safehold (SAFE)
  • Uniti Group (UNIT)
  • Annaly Capital Management (NLY)

The Bottom Line

Before investing in REITs, it’s important to understand how dividends are taxed. With a REIT, you’ll often receive dividends throughout the year, which you’ll need to pay taxes on. The good news is you’ll be sent a breakdown of the income you’ve earned through any dividend distributions you took as well as capital gains, making it easy to file with your tax return. You’ll also likely receive a 20% qualified business income deduction on the part of the dividends that are categorized as ordinary income, which will help you save a little. Work with an accountant to better understand exactly how much you’ll pay in taxes when you invest in a REIT.

Frequently Asked Questions (FAQs)

How are REIT ETF dividends taxed?

Most REIT ETF dividends will be taxed at your ordinary income tax rate after the 20% qualified business income deduction is applied to those distributions. In some cases, you might owe capital gains tax on some REIT ETF earnings, which will be noted on Form 1099-DIV.

How are mortgage REIT dividends taxed?

Just like REIT ETFs, mortgage REIT dividends are also taxed at your ordinary income tax level. In most cases, you’ll still qualify for the 20% qualified business income deduction, and you may also owe capital gains tax on a portion of your earnings.

How are REIT dividends taxed to the foreign investor?

Foreign investment taxation rules can be complex, and the SEC recommends consulting a tax advisor. That said, foreign investors will typically be taxed at 30% for REIT dividends, though many investors may qualify for reduced treaty agreements, lowering their taxation percentage.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. "Real Estate Investment Trusts (REITs)."

  2. SEC Office of Investor Education and Advocacy. "Investor Bulletin: Real Estate Investment Trusts (REITs)."

  3. IRS. "Instructions for Form 1099-DIV (2021)."

  4. IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2021."

  5. IRS. "Qualified Business Income Deduction."

  6. IRS. "Publication 550: Investment Income and Expenses (Including Capital Gains and Losses)," Page 67.

  7. TurboTax. "Tax Tips for Real Estate Investment Trusts."

  8. U.S. Securities and Exchange Commission. "Federal Income Tax Consequences of Our Qualification as a REIT."

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