Securities Industry Essentials (SIE) ExamUnderstanding Products and Their RisksMedium
Which of the following statements is TRUE regarding the taxation of dividends received from a Real Estate Investment Trust (REIT)?
- AREIT dividends are qualified dividends and taxed at preferential long-term capital gains rates.
- BREIT dividends are generally exempt from federal income tax.
- CREIT dividends are always tax-deferred until the investment is sold.
- DREIT dividends are typically taxed as ordinary income, though a deduction may apply.
Show answer & explanationAnswer & explanation
Correct answer: D. REIT dividends are typically taxed as ordinary income, though a deduction may apply.
Unlike most corporate dividends, REIT dividends are generally not considered qualified dividends and are therefore taxed as ordinary income at the investor's marginal tax rate. However, under current tax law, a 20% qualified business income (QBI) deduction may apply to REIT dividends for eligible taxpayers.
Why the other options are wrong
- A. This is incorrect; REIT dividends are typically not qualified dividends and are taxed as ordinary income.
- B. This is incorrect; REIT dividends are taxable.
- C. This is incorrect; REIT dividends are generally taxable in the year they are received.
REIT Dividend Taxation
Dividends from Real Estate Investment Trusts (REITs) are generally taxed as ordinary income at the investor's marginal tax rate, and are typically not considered qualified dividends.
- Not tax-exempt or tax-deferred.
- Usually taxed as ordinary income.
- May be eligible for a 20% Section 199A QBI deduction.
Memory trick: REIT Receipts are Regularly Taxed.