REIT-Related Provision Set to Expire at End of 2025
On April 10, 2025, the House approved the budget resolution parameters set by the Senate. This approval paves the way for Congress to focus on passing tax legislation, such as extensions of the TCJA and other tax reforms supported by President Trump and congressional members. These measures will be enacted through the budget reconciliation process, enabling both chambers of Congress to pass substantial tax legislation with a simple majority vote.
The most significant provision affecting Real Estate Investment Trusts (REITs) and their investors is the Qualified Business Income Deduction (QBID). This provision allows a 20% deduction on taxable business income for owners of pass-through entities, including dividend income from REITs. This deduction is scheduled to sunset after 2025.
By way of example, if a REIT investor received $10,000 of qualified REIT dividends, the QBID makes it so that the investor is only paying tax on $8,000 (the QBID is $2,000, 20% of $10,000). Since REIT dividends are considered ordinary dividends (they do not qualify to be treated as qualified dividends), the $8,000 would then be taxed at the marginal rate according to the taxpayer’s tax bracket.
There is no specific deadline for Congress to pass the budget reconciliation bill, and any changes could impact the tax benefits associated with REIT investments. So, it’s a good idea to consult with your tax advisor to plan accordingly.
Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
