Byte # 3: Did You Know REIT Dividends Can Qualify for a 20% Tax Deduction?

Start your week with Byte #3 – here’s your Monday dose of another financial insight!

When you receive dividends from stocks, you usually hope for that sweet, low tax rate on qualified dividends, right?

For a long time, I assumed the best way to hold REITs was inside tax-advantaged accounts like an IRA or HSA to avoid the higher tax bite. But here's something that I missed: Section 199A of the 2017 Tax Cuts and Jobs Act, has a hidden perk available even in taxable accounts.

💡Section 199A of the Trump Tax Cuts (still in effect until end of 2025), allows you to deduct up to 20% of REIT dividends. Simply put the first 20% of the portion of REIT’s dividend that is classified as ordinary income isn’t taxed.

That means if you earn $1,000 in REIT dividends, you will be taxed on $800.

👉 If you're holding REITs in a taxable account, this deduction can make a big difference in your after-tax yield.

📅 Just keep in mind: This benefit disappears after 2025 unless Congress renews it.

🛠️ A Few Smart Tips When Evaluating REITs:

• ✅ Look for low leverage: Debt-to-tangible book value under 50% is generally a good sign.

• ✅ Check the dividend safety: A Dividend-to-FFO (Funds From Operations) payout ratio below 100% means the REIT is generating enough income to sustain dividends.

• ✅ Understand lease strength: In many cases, if a tenant declares bankruptcy, lease obligations take legal priority—often protecting a REIT’s cash flow even when tenants are under stress.

💡 Final Thought: REITs offer a powerful way to access steady income—and if you invest in well-managed REITs with a history of growing dividends, they can be a long-term wealth-building asset.