Hold income funds that pay REIT dividends
Explore: well supported, often missed.
Ordinary dividends from a real estate investment trust qualify for a 20% deduction, which makes them taxed at a lower effective rate than interest from bonds or savings. The 2025 tax law made the deduction permanent.
Some private lending and real estate funds are set up as REITs for exactly this reason. Where you hold them matters: in a taxable account they get the deduction; in an IRA, the benefit is wasted.
How it works
Ordinary dividends from a real estate investment trust (REIT) get a 20% deduction, so they’re taxed at a lower effective rate than interest. Some private lending and real estate funds are set up as REITs for this reason.
What makes it hold up
- The 1099-DIV showing section 199A dividends
- How long you held the shares
Risks
Low. It’s automatic when the fund is a REIT and reports correctly. Holding REITs in an IRA wastes the benefit.
Questions to ask your CPA
- Which of my income investments are REITs?
- Should my interest-paying funds move to an IRA and the REITs stay taxable?
Common questions
How do I know if a dividend qualifies?
Your 1099-DIV shows section 199A dividends in their own box. Those get the 20% deduction.
Is there a holding period?
Yes. You need to hold the shares for more than 45 days around the dividend date for it to qualify.
Should my REITs be in my IRA or my taxable account?
Generally taxable, where the deduction applies. Interest-paying funds, which get no special treatment, often fit better in an IRA.
Do I need to do anything to claim it?
No. The deduction is taken on your return automatically when the fund reports correctly.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.