It’s been two weeks since Congress passed the near-900-page “One Big Beautiful Bill Act” in a flurry of activity to meet a President Donald Trump-imposed July 4 deadline. As a result, the impacts for investors are still being sorted out.
Among those is Section 199A—a 20% deduction for qualified business income enacted as part of the Tax Cuts and Jobs Act in 2017, which became permanent. (The provision had been set to expire at the end of the year.) The core of the provision applies to pass-through income from U.S. businesses operated through a sole proprietorship or through a partnership, S corporation, trust or estate. However, 199A also applies to REIT share dividends, so owners of public REIT equities automatically qualify.
This means investors in the top income bracket, rather than paying a 37% income tax on dividend income (for those with taxable income of $609,351 and up), instead will be taxed at 29.6%. At the 32% bracket (income between $191,951 and $243,725), the effective tax rate will be 25.6%.
“So, it’s a meaningful reduction in the effective tax rate on ordinary REIT dividends,” said John Worth, the executive vice president for research and investor outreach at Nareit. “The permanence is critical. These tax rates have been in play, but it was never clear if they would persist. But now, them becoming a permanent part of the tax code is important for financial advisors to know and understand.”
Another feature pointed out by the Tax Foundation is that the deduction benefit will also extend to business development companies registered as regulated investment companies.
“One of the unique things is for a lot of conditions on 199A you have to be doing it in a partnership, but if you own REIT stocks, you just qualify,” Worth said. “There are no extra conditions. Everyone gets it.”
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