Can a REIT stop paying dividends?

Many are lucky if they can even maintain their dividends. Several factors can force a REIT to reduce its dividend, including: A high dividend payout ratio. REITs must pay at least 90\% of their taxable net income via dividends to comply with IRS regulations.

Are REITs required to pay dividends?

Real estate investment trusts, or REITs, are famously required to pay out most of their earnings as dividends in exchange for being treated as pass-through businesses by the IRS. The short version is that when a REIT calculates its taxable income for a given year, it must have paid out at least 90\% of it as dividends.

Why are REIT dividends so low?

There’s only one catch: the payouts are not generated from the company’s earnings. This largely explains why so many REITs have low payout ratios. In equity research, the payout ratio is the percentage of net income that a company pays out as dividends.

What happens if you lose REIT status?

If we fail to satisfy one or more requirements for REIT qualification, other than the gross income tests and the asset tests, and the violation is due to reasonable cause, we may retain our qualification as a REIT but will be required to pay a penalty of $50,000 for each such failure.

How is REIT dividend income taxed?

The majority of REIT dividends are taxed as ordinary income up to the maximum rate of 37\% (returning to 39.6\% in 2026), plus a separate 3.8\% surtax on investment income. Taking into account the 20\% deduction, the highest effective tax rate on Qualified REIT Dividends is typically 29.6\%.

How is a REIT taxed if it does not elect REIT provisions?

If a REIT fails to meet the distribution requirement and does not elect one of the three aforementioned solutions, it will fail to be a REIT and will be taxed as a C corporation.

Are REIT dividends taxable if reinvested?

The tax rules governing REITs promote the payout of profits to investors in the form of dividends. Those same rules mean that investors must pay taxes on those dividends, even if they are reinvested into more REIT shares.