REIT dividends are taxed based on their classification:

  • Ordinary Income: Taxed at the shareholder’s ordinary income tax rate, with potential eligibility for a 20% Qualified Business Income (QBI) deduction.
  • Capital Gains: Taxed at lower long-term capital gains tax rates.
  • Return of Capital: Not immediately taxable, but reduces the cost basis of your REIT shares, potentially resulting in a larger capital gain when you sell.