What Are Qualified REIT Dividends and PTP Income?

Qualified REIT dividends and PTP income are two kinds of passive investment income that qualify for a 20% deduction under Section 199A of the tax code. Qualified REIT dividends are the ordinary-income portion of distributions from real estate investment trusts; qualified PTP income is your share of ordinary business income from a publicly traded partnership. If you hold either, you can deduct 20% of that income on your federal return, whether you itemize or take the standard deduction. The deduction was made permanent on July 4, 2025, with a few changes taking effect for the 2026 tax year.

What Counts as a Qualified REIT Dividend

A real estate investment trust pools investor money to own or finance income-producing properties. To avoid corporate-level tax, a REIT must distribute at least 90% of its taxable income to shareholders each year. Those distributions reach you as dividends, but only part of them qualifies for the Section 199A deduction.

A qualified REIT dividend is any REIT dividend that is not a capital gain dividend and not qualified dividend income eligible for the lower capital gains tax rates.¹ In plain terms, the ordinary-income slice of your REIT payout is what qualifies for the 20% deduction. The capital gain slice already gets preferential rates, so it stays out of Section 199A. The REIT itself does the sorting and reports the qualifying amount to you.

Holding Period

You cannot buy REIT shares the day before a dividend, collect the payout, sell, and claim the deduction. The shares must be held for more than 45 days during the 91-day window that begins 45 days before the ex-dividend date.² If you also have an obligation to make related payments on the same shares through a short sale or similar arrangement, the dividend does not qualify. Buy-and-hold investors rarely bump into this rule; frequent traders do.

REIT Dividends Held Through Funds

Many investors own REITs indirectly through mutual funds or ETFs. Funds taxed as regulated investment companies can pass Section 199A treatment through to their shareholders. When a fund receives qualified REIT dividends, it may report a portion of its own distributions as Section 199A dividends, and that portion qualifies for the 20% deduction at your level. Look for the amount in Box 5 of your Form 1099-DIV.³

What Counts as Qualified PTP Income

A publicly traded partnership is a partnership whose ownership interests trade on a securities exchange or secondary market, much like stocks. Despite trading publicly, a PTP keeps its partnership tax structure: income, gains, losses, and deductions flow through to the individual partners rather than being taxed at the entity. Each year the PTP sends you a Schedule K-1 with your share.

The ordinary business income from a PTP can qualify for the Section 199A deduction, but only if the PTP is engaged in a qualified trade or business. Qualified PTP income is the net amount of qualified items of income, gain, deduction, and loss from that business. Income from PTPs that primarily trade in commodities, futures, or other financial instruments generally does not qualify.⁴

The SSTB Trap at Higher Incomes

The biggest trap with PTP income is the specified service trade or business rule. If the PTP operates in a field like health care, law, accounting, consulting, financial services, or any business whose principal asset is the reputation or skill of its employees, the SSTB limitation applies.⁵ For 2026, the rule works this way:

Below $403,500 joint or $201,750 for other filers, the SSTB limitation does not apply. You deduct 20% of qualified PTP income regardless of the PTP’s industry.
Within the phase-in range of $403,500 to $553,500 joint, or $201,750 to $276,750 for others, you deduct a declining percentage.
Above $553,500 joint or $276,750 other, PTP income from an SSTB is completely excluded. No portion qualifies.

This limitation attaches to you based on your total taxable income, not on whether you performed any services for the PTP. You can be a purely passive investor in a PTP that runs a consulting firm, and if your income is high enough, that PTP income gets no deduction. Qualified REIT dividends are never subject to the SSTB restriction.

Netting Across PTPs

If you hold interests in several PTPs, combine the net qualified income or loss from all of them before calculating the deduction. A net positive gets multiplied by 20% for your PTP component. A net loss means no PTP deduction for the year, but the loss carries forward to offset future PTP income and continues to do so even if the partnership that generated it no longer exists.⁶ Losses from a PTP that are suspended under passive activity or at-risk rules do not count as QBI until the year they are actually included in your taxable income, and when they flow through they are treated as coming from a separate trade or business.

How the 20% Deduction Works for These Two Income Types

Section 199A has two components calculated separately and then added together. The QBI component covers income from active pass-through businesses and is subject to W-2 wage and property-basis limitations once your income climbs. The REIT/PTP component covers qualified REIT dividends plus qualified PTP income and is not subject to those wage or property limits at any income level.⁴

Technically, qualified REIT dividends and qualified PTP income are excluded from the statutory definition of qualified business income.¹ That sounds like a disadvantage, but it is why Congress put them in a separate bucket: they bypass the wage-and-property limitations that restrict the QBI component. The result is a cleaner path to the deduction.

Two caps apply to the total. The combined deduction cannot exceed 20% of your taxable income minus net capital gains. And the deduction reduces taxable income rather than adjusted gross income, so it works alongside either the standard deduction or itemizing. One useful detail: even if your QBI from active businesses is negative for the year, you can still claim a deduction based on your qualified REIT dividends and PTP income. The REIT/PTP component stands on its own.⁶

How to Report and Claim It

The reporting process begins with the documents you receive. Your qualified REIT dividends appear in Box 5 of Form 1099-DIV, labeled “Section 199A dividends.”³ Your share of qualified PTP income arrives on Schedule K-1 from the partnership, with an accompanying statement showing the QBI-eligible amount.

To calculate the deduction, use one of two IRS forms. Form 8995 is the simplified version, available if your 2026 taxable income is below $403,500 joint or $201,750 for other filers. Everyone else uses Form 8995-A, which includes extra schedules for wage limitations, SSTB phase-ins, and loss netting.⁷ The final deduction flows to your Form 1040. If you have a qualified business net loss carryforward from prior years, complete Schedule C of Form 8995-A before starting the main form, even if your current-year income is positive.

Estimated Tax Implications

If you receive significant REIT dividends or PTP income, the Section 199A deduction lowers your overall tax for the year, and that should be built into your quarterly estimated payments. The 2026 Form 1040-ES worksheet includes a dedicated line (Line 2b) where you enter your estimated QBI deduction, which then reduces the taxable income figure used to calculate each installment.⁸

Estimating accurately is tricky because you may not know your total qualified REIT dividends or PTP income until the REIT or partnership issues its tax documents, sometimes well into the following year. A reasonable approach is to start from the prior year’s Section 199A deduction and adjust as updated information arrives. As long as your total estimated payments cover at least 90% of your current-year tax or 100% of your prior-year tax (110% if your adjusted gross income exceeded $150,000), you avoid the underpayment penalty.

What Changed for 2026

Section 199A was enacted as part of the 2017 Tax Cuts and Jobs Act with a scheduled expiration date of December 31, 2025. The One Big Beautiful Bill Act, signed on July 4, 2025, eliminated the sunset and made the deduction permanent for tax years beginning after December 31, 2025.⁸

The 20% rate stayed the same. The legislation widened the phase-in range for income-based limitations to $150,000 for joint filers and $75,000 for everyone else, up from $100,000 and $50,000. For 2026, limitations begin phasing in at $403,500 joint and $201,750 other, and apply in full once taxable income reaches $553,500 joint or $276,750 other. These thresholds adjust annually for inflation. The law also created a new $400 minimum deduction for taxpayers with at least $1,000 of QBI from a business in which they materially participate, but that floor is tied to active participation and does not reach passive REIT or PTP investors.

1
Office of the Law Revision Counsel. 26 USC 199A: Qualified Business Income
2
eCFR. 26 CFR 1.199A-3 – Qualified Business Income, Qualified REIT Dividends, and Qualified PTP Income
3
Internal Revenue Service. Instructions for Form 8995-A (2025)
4
Internal Revenue Service. Qualified Business Income Deduction
5
eCFR. 26 CFR 1.199A-5 – Specified Service Trades or Businesses and the Trade or Business of Performing Services as an Employee
6
Internal Revenue Service. 2025 Instructions for Form 8995-A
7
Internal Revenue Service. About Form 8995, Qualified Business Income Deduction Simplified Computation
8
Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals