Section 199A dividends are the portion of a REIT’s ordinary dividend payout that qualifies for a 20% federal tax deduction under Internal Revenue Code Section 199A. If you own shares in a Real Estate Investment Trust or a mutual fund or ETF that holds REITs, part of what you receive each year may be eligible for this write-off, which directly lowers your taxable income. Congress created the deduction in the Tax Cuts and Jobs Act of 2017, and the One Big Beautiful Bill Act, signed July 4, 2025, made it permanent.
Where the Dividends Come From
REITs must distribute at least 90% of their taxable income to shareholders, and most of that comes to you as ordinary income rather than at the lower qualified-dividend rate. Section 199A takes the sting out of that by letting you deduct up to 20% of the qualifying portion. Not every dollar counts. Capital gain distributions and any qualified dividends the REIT reports are excluded. Only the ordinary-income slice qualifies, and the REIT decides how much of each distribution falls into that bucket based on its own taxable income for the year.
Finding the Amount on Your 1099-DIV
Your brokerage or fund company reports the qualifying amount in Box 5 of Form 1099-DIV, labeled “Section 199A dividends.”1Internal Revenue Service. Form 1099-DIV Dividends and Distributions That figure is already included in the total ordinary dividends shown in Box 1a. Don’t add the two boxes together, or you’ll double-count. Box 5 is simply telling you how much of the Box 1a total is eligible for the 20% deduction. A blank or zero in Box 5 means none of the dividends from that account qualify.
Mutual Funds and ETFs
You don’t need to own individual REIT stocks. Regulated investment companies, which include most mutual funds and ETFs, can pass through the Section 199A character of the REIT dividends they receive. A total-market index fund that holds REITs will report the qualifying portion in Box 5 of the 1099-DIV it sends you.2Internal Revenue Service. Instructions for Form 1099-DIV The holding-period rule below applies to your shares in the fund, not to whatever the fund owns underneath.
The Holding Period
You can’t buy shares the day before a REIT pays its dividend, collect the payout, and claim the deduction. To qualify, you must hold the shares for more than 45 days during the 91-day window that begins 45 days before the ex-dividend date.3eCFR. 26 CFR 1.199A-3 – Qualified Business Income, Qualified REIT Dividends Days when your risk of loss was reduced through hedging, short positions, or put options don’t count. Long-term buy-and-hold investors clear this bar automatically. The rule mainly catches short-term traders and certain structured transactions.
Calculating the Deduction
Start with 20% of your Section 199A dividends. If Box 5 shows $10,000, the starting figure is $2,000.
That amount is then capped. The deduction cannot exceed 20% of your taxable income minus any net capital gain, which for this purpose includes qualified dividends.4Internal Revenue Service. Qualified Business Income Deduction Your actual deduction is whichever number is smaller.
An example. You have $50,000 in taxable income, no net capital gains, and $10,000 in Section 199A dividends. Twenty percent of the dividends is $2,000. Twenty percent of your taxable income is $10,000. The $2,000 wins, and that’s your deduction. If a bad year drops your taxable income to $8,000, 20% of that is $1,600, and $1,600 becomes the ceiling instead.
No Wage or Property Limitation
REIT dividends have a real advantage over other pass-through income. The Section 199A deduction for income from an S corporation or partnership is subject to complicated limits based on W-2 wages paid and the unadjusted basis of qualified property. The REIT dividend piece skips those limits entirely.4Internal Revenue Service. Qualified Business Income Deduction As long as you meet the holding period and your taxable income supports the deduction, you get the full 20%.
What the Deduction Does and Doesn’t Reduce
The deduction lowers your taxable income, not your adjusted gross income. It won’t help you qualify for AGI-sensitive tax breaks like the student loan interest deduction or education credits. It still trims your tax bill, but the benefit is confined to income taxed at your marginal rate. You can also claim it whether you itemize or take the standard deduction; the two don’t conflict.4Internal Revenue Service. Qualified Business Income Deduction
Reporting It on Your Return
Which form you use depends on your taxable income before the deduction. For 2026, if your taxable income is at or below $403,500 (married filing jointly) or $201,750 (all other filers), file Form 8995. Above those thresholds, use Form 8995-A, which handles the phase-in calculations and additional limitations that apply to higher earners.5Internal Revenue Service. Instructions for Form 8995 The final deduction flows to Line 13a of Form 1040.6Internal Revenue Service. Instructions for Form 1040
Keep your 1099-DIV and any calculation worksheets for at least three years after filing. That’s the standard IRS assessment window.7Internal Revenue Service. Topic No. 305, Recordkeeping
Retirement Account Dividends Don’t Qualify
REIT dividends earned inside a 401(k), traditional IRA, or Roth IRA are not eligible. Those accounts already shelter the income from current taxation, and the deduction only applies to income you’re reporting on this year’s return. If you hold REITs in both a taxable brokerage and a retirement account, only the brokerage dividends will show a Box 5 figure.
The Deduction Is Permanent
Under the original Tax Cuts and Jobs Act, Section 199A was set to expire after December 31, 2025. The One Big Beautiful Bill Act, signed July 4, 2025, removed the sunset and made the deduction permanent.8Internal Revenue Service. One, Big, Beautiful Bill Provisions You can now factor the 20% write-off into long-term planning without the legislative cliff that hung over earlier years.