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There seems to be a lot of conflicting information about this so I thought I would ask here.

I am wondering if all REIT dividends are eligible for QBI deduction. And by ALL, I literally mean ALL.

I think the answer to this question is "NO". The reason I say this is because whenever I google/bing this question, I get some a lot of conflicting information. They say either all dividends are eligible, only qualified dividends are eligible, no dividends are eligible, or all dividends are qualified and are therefore eligible. I need someone to help me cut through the noise on this and just give me a simple answer.

In addition, I have no idea how to tell if a particular REIT's dividends will be eligible or not for QBI deduction. If there is something from a quarterly report or annual report I should look at then it would be good to know this.

EDIT: Maybe to simplify the question, I can ask it like this: If I pick a publicly traded REIT at random, will its dividends be eligible for QBI?

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You need to look at the IRC Sec. 199A(e)(3):

The term “qualified REIT dividend” means any dividend from a real estate investment trust received during the taxable year which—

(A) is not a capital gain dividend, as defined in section 857(b)(3), and

(B) is not qualified dividend income, as defined in section 1(h)(11).

Basically, REIT dividends that are not capital gain distributions and are not treated as qualified dividends for income tax purposes.

They're generally explicitly reported on your 1099-DIV in box 5.

The word "qualified" is confusing. Generally, the term "qualified dividends" refers to dividends qualified for the preferential tax treatment (i.e.: taxed at capital gains rate). That is covered in the IRC Sec. 1(h)(11). These are reported on 1099-DIV box 1b.

What the quote above says is that only REIT dividends that don't qualify for the Sec. 1(h)(11) treatment are qualified for the Sec. 199A treatment.

Qualification under Sec. 1(h)(11) depends, among other things, on holding periods. So for the same REIT fund, the same dividend may be qualified for Sec. 199A treatment (QBI) for some shareholders, and for Sec. 1(h)(11) treatment (qualified dividends) for others, depending on their personal circumstances.

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  • But is there a specific definition of "qualified reit dividend" that is different from some other kind of "reit dividend" (not cap gains)? I ask because these are specifically described differently in so many guides. It's not clear if "qualified reit dividend" has the same meaning as "qualified dividend".
    – sparaps
    Commented Aug 2, 2023 at 21:44
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    @sparaps yes there is. I quoted it. That's the definition
    – littleadv
    Commented Aug 2, 2023 at 21:46
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    As far as I know, the easiest way to determine if any of your dividends qualify for special treatment is to wait for the year-end tax statement from your broker. If you're trying to compare funds on this basis I suspect you need to ask the funds for a breakdown of their tax efficiency for the last N years; that would be a great thing to include in the prospectus...
    – keshlam
    Commented Aug 3, 2023 at 1:23
  • From what I'm reading above, it sounds like there are only 3 possible options for REIT taxation: 1) "qualified REIT dividend" as listed in 199A, 2) a long-term capital gain dividend, or 3) qualified dividedn income. This would mean that a REIT dividend is NEVER considered an ordinary dividend. Is this correct?
    – sparaps
    Commented Aug 3, 2023 at 8:01
  • @sparaps when it is ordinary that's when it qualifies for the 199A treatment. The difference between "ordinary" and "qualified" you usually hear is for the Sec 1(h)(11) treatment.
    – littleadv
    Commented Aug 3, 2023 at 16:30

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