Why are REIT dividends mostly ordinary income?

REIT pass-through income retains character as non-qualified dividends for most investors. A portion may be return of capital, lowering basis. IRAs sidestep annual taxation.

How do rate hikes affect REITs?

Higher rates raise borrowing costs and compete with yield-oriented stocks. REITs with inflation-linked leases and moderate leverage historically weathered cycles better than highly levered office portfolios.

Roth IRA or taxable for REITs?

Roth is usually optimal. Taxable $25,000 at 6% generates about $1,500 in annually taxable ordinary income — at a 22% marginal rate that is about $330 per year in federal tax before state tax.

Dividend scenario

REIT Dividend Income Calculator — 6% Yield

Model a $25,000 REIT portfolio at 6% yield with DRIP. See $384,636 after 20 years and $19,058 annual income with $250/month added.

REITs must distribute at least 90% of taxable income to shareholders, which supports yields above the S&P 500 index average near 1.05%. The defaults use a 6.00% modeled yield ($2.10 on a $35 share), 4% dividend growth, 5% price growth, $250 monthly contributions, and DRIP. After 20 years the calculator shows $384,636 in portfolio value and $19,058 in annual dividends. Most REIT distributions are taxed as ordinary income in taxable accounts — IRAs avoid that drag.

Initial Investment

Total amount to invest upfront

Share Price

Current price per share

Annual Dividend per Share

Current annual dividend per share

Dividend Growth Rate

Expected annual dividend increase

Share Price Growth

Expected annual price appreciation

Time Period

years

Monthly Contribution

Additional monthly investment

Reinvest Dividends (DRIP)

Portfolio Value

$384,636

After 20 years

Annual Dividend Income

$19,058

$1,588.18/month

Total Dividends Earned

$158,499

Over 20 years

Current Yield

6.00%

Dividend / share price

Yield on Cost

22.42%

Dividend / total invested

Total Invested

$85,000

Initial + contributions

Initial Shares

714.29

At purchase price

Year-by-Year Growth

Year	Shares	Div/Share	Annual Dividend	Portfolio Value	Total Dividends
1	843.22	$2.18	$1,738	$30,988	$1,738
2	975.17	$2.27	$2,092	$37,630	$3,830
3	1110.39	$2.36	$2,478	$44,989	$6,309
4	1249.10	$2.46	$2,901	$53,140	$9,210
5	1391.55	$2.55	$3,363	$62,160	$12,573
6	1537.96	$2.66	$3,868	$72,136	$16,440
7	1688.60	$2.76	$4,418	$83,161	$20,859
8	1843.68	$2.87	$5,020	$95,339	$25,878
9	2003.47	$2.99	$5,676	$108,781	$31,554
10	2168.20	$3.11	$6,391	$123,612	$37,946
11	2338.12	$3.23	$7,171	$139,964	$45,117
12	2513.47	$3.36	$8,022	$157,984	$53,139
13	2694.50	$3.50	$8,948	$177,831	$62,086
14	2881.46	$3.64	$9,956	$199,678	$72,042
15	3074.60	$3.78	$11,054	$223,716	$83,096
16	3274.18	$3.93	$12,248	$250,149	$95,344
17	3480.44	$4.09	$13,546	$279,203	$108,890
18	3693.63	$4.25	$14,958	$311,121	$123,848
19	3914.03	$4.42	$16,492	$346,169	$140,340
20	4141.87	$4.60	$18,158	$384,636	$158,499

Key Considerations

Day-one income on $25,000 at 6% is $1,500 per year ($125 per month) in the model before growth and contributions.
Hold REITs in a Roth IRA when possible: ordinary-income taxation on distributions can cost hundreds of dollars per year on a taxable $25,000 balance.
Industrial and data-center REITs outperformed many office and retail REITs in the 2010s and early 2020s — sector mix matters more than the label 'REIT.'
Rising Treasury yields (10-year near 5.15% in October 2026) can pressure REIT prices even when dividends hold; stress-test with lower sharePriceGrowth inputs.
Diversify across property types rather than one mortgage REIT or single-tenant office name.

Quick Numbers

Starting yield	6.00%
Portfolio value (year 20)	$384,636
Annual dividend income (year 20)	$19,058
Total invested	$85,000
Cumulative dividends	$158,499
REIT payout requirement	≥90% of taxable income

How This Compares

REITs in this model start near 6% yield versus ~3% for Dividend Aristocrat defaults and ~1% for the broad index. Tax treatment is worse in taxable accounts than qualified dividends from C-corps. Blend REITs as a slice of income portfolios rather than the entire equity allocation.

Frequently Asked Questions

Why are REIT dividends mostly ordinary income?: REIT pass-through income retains character as non-qualified dividends for most investors. A portion may be return of capital, lowering basis. IRAs sidestep annual taxation.
How do rate hikes affect REITs?: Higher rates raise borrowing costs and compete with yield-oriented stocks. REITs with inflation-linked leases and moderate leverage historically weathered cycles better than highly levered office portfolios.
Roth IRA or taxable for REITs?: Roth is usually optimal. Taxable $25,000 at 6% generates about $1,500 in annually taxable ordinary income — at a 22% marginal rate that is about $330 per year in federal tax before state tax.

Sources Multpl S&P 500 dividend yield (Oct. 20, 2026), Federal Reserve H.15 (10-year yield, Oct. 2026). Checked October 2026. REIT tax rules are general; consult IRS Pub. 550 and your preparer for your forms.