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Usually, ordinary REIT dividends are not “qualified dividends” eligible for preferential qualified-dividend tax rates. But a REIT’s distributions can include several tax categories. In particular, “qualified REIT dividends” may count toward a separate Section 199A deduction; the phrase does not mean they receive the qualified-dividend tax rate. Your Form 1099-DIV identifies the categories to report.
Qualified dividends and qualified REIT dividends are different
For U.S. federal income tax purposes, ordinary REIT dividends generally do not qualify for the preferential tax rates that may apply to qualified dividends. Qualified dividends are a subset of ordinary dividends that meet IRS requirements, including rules for the payer and the shareholder’s holding period. For common stock, the holding-period test generally requires holding shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Meeting a holding-period test for REIT shares does not, by itself, make an ordinary REIT dividend a qualified dividend. See the IRS Publication 550 (2025).
The similar-sounding term qualified REIT dividends usually refers to a category relevant to the Section 199A deduction, not the preferential qualified-dividend rates. The categories and rules are separate.
How each REIT distribution category is generally taxed
A REIT distribution may contain more than one tax category. Use the issuer’s Form 1099-DIV rather than assuming that every payment is taxed the same way.
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| Form 1099-DIV box | What it reports | General federal treatment |
|---|---|---|
| 1a | Ordinary dividends | Generally reported as ordinary dividend income. REIT ordinary dividends generally are not qualified dividends. |
| 1b | Qualified dividends | The portion of ordinary dividends the payer identifies as qualified and potentially eligible for preferential qualified-dividend rates. |
| 2a | Capital gain distributions | Generally treated as long-term capital gains. The IRS says capital gain distributions are reported as long-term capital gains; see Topic no. 404. |
| 3 | Nondividend distributions | Generally a return of capital that reduces your basis in the shares. Once basis reaches zero, additional nondividend distributions are taxable as capital gain. |
| 5 | Section 199A dividends | May be included in the Section 199A deduction calculation if you meet the applicable requirements; this is not the qualified-dividend rate. |
Box descriptions and reporting rules are in the IRS Instructions for Form 1099-DIV. For a nondividend distribution, you need your share-basis records to determine how much basis remains to reduce.
When qualified REIT dividends may count toward Section 199A
Eligible taxpayers may be able to include qualified REIT dividends in the Section 199A deduction calculation. IRS guidance describes a REIT and publicly traded partnership component based on 20% of qualified REIT dividends and qualified publicly traded partnership income, subject to the deduction’s rules and taxable-income limitation. This is a possible deduction—not an automatic tax-rate reduction, and not a guarantee that your tax bill falls by 20% of the dividend. See the IRS Section 199A guidance and the current-year instructions for Form 8995 or Form 8995-A.
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For the general individual-shareholder rule, qualified REIT dividends are reported in Form 1099-DIV box 5. The IRS instructions include a more-than-45-day holding requirement during the relevant 91-day period. They also exclude capital gain dividends and qualified dividends from this category and require that the payment not be obligated to another person. Risk-of-loss and related-payment rules can also affect eligibility. Check the instructions for the tax year on your return; Section 199A rules include changes for tax years beginning after 2025.
How to use Form 1099-DIV when filing
- Find the issuer’s Form 1099-DIV. Use the form issued for the tax year you are filing, including any corrected form.
- Read the relevant boxes separately. Check boxes 1a, 1b, 2a, 3, and 5; do not treat the total distribution as a single kind of income.
- Enter each amount using the current-year return instructions. IRS guidance generally directs ordinary dividends to Form 1040 line 3b, qualified dividends to line 3a, and capital gain distributions to Form 1040 or Schedule D depending on the circumstances. More than $1,500 in taxable ordinary dividends generally requires Schedule B. Line numbers and filing instructions can change, so confirm them for your tax year using IRS Topic 404, Form 1099-DIV instructions, and Publication 550.
- Keep basis records for box 3 amounts. Apply nondividend distributions against your basis and track any amount that exceeds the remaining basis.
- Ask the payer about a questionable classification. The payer identifies which ordinary dividends are qualified. If a statement looks incomplete or incorrect, contact the issuer or broker for clarification or a corrected form.
What this general guidance does not determine
This article covers general U.S. federal individual tax treatment. Your result can depend on the tax year, the distribution’s reported character, your holding period, taxable income, filing status, and other circumstances. State and local tax treatment, nonresident taxation, trusts, entities, and distributions held in retirement accounts may require different analysis. Annual IRS forms and instructions should be checked for the return year.
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