min read

How Dividends Are Taxed on Real Estate Investments: A Deep Dive 2023

Published on
September 30, 2023
John Sutton

"In this world, nothing can be said to be certain, except death and taxes" – Benjamin Franklin.

This adage holds true for real estate investments as well, but the good news is that real estate offers some unique tax advantages. Let's delve into the tax implications of dividends on real estate investments, particularly those structured as Real Estate Investment Trusts (REITs).

REITs and Tax Benefits

Real estate investments, when structured as REITs, offer specific tax benefits that can make your investment more tax-efficient. Unlike other corporate structures, REITs are not subject to corporate income tax, thereby avoiding double taxation. Additionally, REIT dividends qualify for the Qualified Business Income (QBI) deduction, which allows investors to reduce their taxable income by up to 20%. Unfortunately, there is still some debate on the passive vs. active nature of short-term rental investments. At the current time, Mansion luxury rentals are not eligible to be taxed as REITS, but we still work to optimize the tax benefits available from other aspects of real estate including depreciation.

Tax Filing Simplified

Investors in Mansion offerings will receive a 1099-DIV tax form each January, summarizing the different types of taxable income for all their properties. This form can be sent to your tax preparer or entered into tax software like TurboTax. Importantly, investors are only required to file taxes at the federal level and in the state where they reside, regardless of where the property is located.

Ordinary Dividends and Section 199a Dividends

The 1099-DIV form will show your total ordinary dividends (Box 1a) and Section 199a Dividends (Box 5). This income is what the property earned from its rental operations. Usually, ordinary income is taxed at your marginal tax rate. However, for any of your investments that qualify for REIT taxation, REIT dividends are considered Section 199a Dividends, qualifying for the QBI deduction. This means 20% of the income is excluded from taxes, effectively lowering your tax rate by 20% for any offering that does qualify for REIT taxation.

For instance, if you earned $100 in taxable income and are in the 32% tax bracket, you'd typically owe $32 in taxes. With the QBI deduction, you'd have $80 in taxable income and pay $25.60 in taxes, representing a 20% tax reduction.

We will continue to work with top tax advisors to understand any opportunities for tax advantages.

Non-dividend Distributions

Sometimes, dividends paid to investors exceed the property's taxable profits due to depreciation. These excess dividends are considered Non-dividend Distributions (Box 3) and are not subject to tax as they are considered a return of capital.

Capital Gains

At the end of the investment period, the property may be sold, and any appreciation in value will be considered a capital gain (Box 2a). Capital gains are typically taxed at either 15% or 20%, depending on your income level, which is often lower than the tax rate on ordinary income.


Investing in real estate like Mansion offerings, offers a tax-efficient way to grow your wealth. The tax benefits include passthrough taxation in some cases (REITs and pass-through entities, but not most Mansion properties are C-Corps and don't pass-thru), depreciation (see our post on depreciation and cross-segregation), long-term capital gains, and the QBI deduction (for REITs), making it an attractive investment option.

Important Note

This should not be taken as tax advice or tax guidance. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


“The above is a summary for general information only, and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules. Additionally, this summary does not address state, local or non-U.S. tax considerations. The tax consequences to any particular investor of any investment offered on the Mansion Platform will depend on the investor’s particular tax circumstances. You are urged to consult your tax advisor regarding the U.S. federal, state, local and non-U.S. income and other tax consequences to your, in light of your particular investment or tax circumstances, of acquiring, holding and disposing of investments offered on the Mansion Platform.

- [IRS: Real Estate Investment Trusts (REITs)](