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Real Estate Investment Trust Dividends

A real estate investment trust (REIT) is a company that owns and operates income producing real estate.  Some REITs finance real estate.  REITs normally deal in properties or mortgages.  The U.S. Internal Revenue Service (IRS) statutes allow REITs to exclude dividend payments from taxable income.  However, there is a condition by the IRS that 90 percent of REIT’s taxable earnings should be distributed to shareholders in the form of dividends every year.  An investment in REITs is a liquid dividend paying means of participating in the real estate market.

REIT dividends are taxable as ordinary incomes.  If the dividends are classified as qualified dividends, they are taxable as capital gains.  Otherwise, the dividend can be taxed at a shareholder’s top marginal tax rate.

Original shareholders or beneficial holders are taxed for the dividends received in the year the distribution of dividend is made by REITs[i].  Even if the dividend is paid late, it will be taxable in the year it was declared to the shareholders.  In some cases, an REIT declares a dividend in the month of October, November, or December.  Then the taxing authorities consider the dividend as paid in the declaring calendar year itself[ii].  This is only applicable if the dividend is actually paid in the month of January of the subsequent year[iii].

[i] 26 USCS § 858

[ii] 26 USCS § 857

[iii] Id


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