REITs can pay investors income from real estate without requiring them to buy and manage property. In the United States, REIT tax rules generally require a qualifying REIT to distribute at least 90% of a defined amount of taxable income—but that rule is not a promise of a fixed dividend, a guarantee of payment, or a requirement to distribute 90% of cash flow or funds from operations (FFO). A REIT can reduce or suspend its distribution if its circumstances change.
How do REIT dividends work?
A real estate investment trust, or REIT, owns or finances income-producing real estate and related assets. Depending on its business model, it may earn income from properties such as apartments, offices, warehouses, hotels or self-storage facilities, or from real-estate loans and other mortgage assets. Investors receive a share of the REIT’s distributions rather than collecting rent or servicing the underlying assets themselves. The SEC’s REIT overview describes the main REIT structures and their risks.
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U.S. REIT rules link qualification to distributions of taxable income. The SEC says REITs must distribute at least 90% of their taxable income for the year. The IRS instructions for Form 1120-REIT for 2025 describe the related dividends-paid deduction test, including a 90% component applied to taxable income after specified adjustments. This is a tax calculation—not 90% of cash flow, FFO, or a particular dividend rate.
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That distinction matters because taxable income and cash available to pay shareholders are not the same measure. A legal distribution requirement explains why REITs are associated with income, but it does not establish that a particular payout is affordable or will continue. The SEC’s publicly traded REIT bulletin also notes that interest rates can affect REITs through different channels.
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Can a REIT cut its dividend?
Yes. A REIT can reduce or suspend a distribution; the 90% tax rule is not a guarantee that investors will receive a set amount on a set schedule. A change in the business’s income, expenses, financing needs or access to capital can affect what it can pay. A REIT’s declared distribution and its ability to sustain it are separate questions.
For an individual issuer, examine its latest annual and quarterly filings for property or borrower performance, operating results, debt obligations, financing arrangements, hedges and stated risk factors. The SEC recommends reviewing REIT disclosures in SEC filings; its general guidance does not establish the outlook for any particular company.
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What can put a REIT distribution at risk?
Property income and asset performance
A REIT that owns properties depends on the income and costs associated with those assets. Tenant conditions and property performance can affect rental income and operating results. A mortgage REIT, by contrast, is exposed to mortgages and related financing risks. The relevant pressure points therefore vary by the REIT’s holdings and business model; read its filings rather than assuming all REITs face the same operating risks.
Borrowing and offering proceeds
A distribution may continue for a time even when current operations do not generate enough cash to support it, if the REIT uses borrowing or money raised from investors. The SEC specifically warns that non-traded REIT distributions may come from offering proceeds or borrowings, potentially before the REIT owns significant assets. Such payments are not, on their own, evidence of recurring property income; the SEC says they can reduce share value and the cash available to acquire assets. See the SEC’s non-traded REIT bulletin.
Interest rates and financing conditions
There is no single direction in which rate changes affect every REIT. The SEC says rates may influence rents or mortgage rates, raise the cost of acquiring properties, and make competing income-producing investments more attractive to investors. For a specific REIT, review debt maturities, financing terms and hedging disclosures rather than treating rising rates as an automatic prediction of a dividend cut.
Fees, conflicts and liquidity
Some REITs use external managers whose compensation may be tied to acquisitions or assets under management, creating potential conflicts that investors should assess in the offering documents and filings. The SEC’s REIT overview reports that sales commissions and upfront offering fees for non-traded REITs usually total approximately 9% to 10% of an investment; that figure concerns the non-traded offering channel, not REITs generally.
Liquidity also affects an investor’s ability to respond to changing circumstances. Exchange-traded REIT shares can generally be bought or sold on an exchange, subject to market conditions. Non-traded REIT shares are not exchange-traded and may be difficult to sell; their estimated values may be less transparent or delayed. These differences affect both the ability to exit and the information available for assessing value.
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| Consideration | Publicly traded REIT | Non-traded REIT |
|---|---|---|
| Trading and liquidity | Shares are listed and can generally be bought or sold on an exchange, subject to market conditions. | Shares are not exchange-traded and generally cannot be sold readily on the open market. |
| Price transparency | An exchange market price is accessible. | Share value can be difficult to determine, and estimates may be delayed. |
| Distribution funding | Review the issuer’s filings and operating disclosures. | The SEC warns that distributions may exceed FFO and may use offering proceeds or borrowings. |
| Costs and conflicts | Public REITs can also use external managers; review governance and fees. | The SEC warns about significant upfront offering costs and potential external-manager conflicts. |
These are general differences, not a substitute for reviewing the actual REIT’s current disclosures and offering documents. The SEC discusses the comparison in its REIT overview and non-traded REIT bulletin.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Are REIT dividends taxed as ordinary income?
For U.S. investors, REIT distributions can have different tax classifications. The SEC says REIT dividends generally are ordinary income and generally do not qualify for the reduced tax rates that apply to qualified dividends. A Form 1099-DIV may also report capital-gain distributions or nondividend distributions; the label matters, and the tax result depends on the investor’s circumstances. The IRS guidance on dividends and other corporate distributions explains these categories.
A nondividend distribution is generally treated as a return of capital: it reduces the shareholder’s adjusted basis in the investment. Once basis reaches zero, additional nondividend distributions are taxable as capital gain. Check the categories reported on Form 1099-DIV; if a distribution’s classification is missing, IRS Topic 404 advises contacting the payer. Consult a qualified tax professional about your own return.
Quick Recap
How to assess a REIT’s distribution
- Identify what you own. Determine whether it is an exchange-traded REIT, a non-traded REIT, a mortgage REIT or a fund that holds REITs. Their structures and risks differ.
- Read the current disclosures. Find the latest annual and quarterly filings, and the prospectus or offering documents where applicable, through SEC EDGAR guidance for REIT investors.
- Trace the distribution’s funding. Look for disclosures about operating results, borrowing and offering proceeds, particularly for non-traded REITs.
- Assess the whole investment. Consider total return—capital appreciation plus distributions—alongside fees, liquidity and price transparency. A large distribution rate alone does not show whether an investment has performed well or whether the payout is supported.
- Use tax documents for tax reporting. Review the Form 1099-DIV categories and consider how any return-of-capital amount affects basis.
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