A portion of a REIT's dividend may be a non-taxable return of capital.

Question

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A portion of a REIT's dividend may be classified as a non-taxable return of capital. This is because REITs are required by law to distribute at least 90% of their taxable income to shareholders, which can include items such as rental income, capital gains, and interest income. However, a portion of this distribution may also be considered a return of capital, which is not taxable as income but instead reduces the cost basis of the shareholder's investment.

A Portion of a REIT's Dividend May Be a Non-Taxable