10/17/2018 | by

Nareit’s Senior Vice President, Policy & Politics, Cathy Barré, recently testified before the Internal Revenue Service (IRS) that the final Section 199A regulations should confirm that the section 199A deduction for qualified REIT dividends is available to both direct REIT shareholders and shareholders of REITs through mutual funds.

“New section 199A includes qualified REIT dividends in a taxpayer’s qualified business income amount and grants a tax deduction, subject to certain limits, to taxpayers in an amount equal to 20 percent of the taxpayer’s qualified REIT dividends,” Barré said in the Oct. 16 hearing.

As detailed in its Oct. 1 letter to the IRS, Nareit believes that the statutory language of section 199A evidences an intent that the 20 percent deduction for qualified REIT dividends applies to investors that own REITs through their ownership of mutual fund shares.

“The statutory definition of a ‘qualified REIT dividend’ under section 199A is very broad,” Barré testified. “The text defines it as ‘any dividend from a real estate investment trust’ that is not a capital gain dividend or qualified dividend income.” Moreover, she said that the “taxpayer,” with respect to the REIT dividend distributed through the mutual fund, is the mutual fund shareholder and the statute grants the deduction to the “taxpayer.”

Nareit maintains that if REIT dividends received through a mutual fund do not qualify for the 20 percent deduction when distributed to the mutual fund shareholders, taxable shareholders of mutual funds owning REIT shares would be incentivized to sell their mutual fund investment and buy those same REIT shares directly to obtain their 20 percent deduction. Nareit estimates that this issue impacts 15 million shareholders who own stock in mutual funds that, in turn, own REIT stocks.

“With the 1099 filing season only a few months away and the time needed for mutual funds and brokers to program their systems, we ask that the Treasury Department expeditiously issue guidance confirming Congressional intent that the section 199A deduction applies to REIT dividends regardless of whether the shares are held directly or through a mutual fund,” Barré said.

(Contact: Cathy Barré at cbarre@nareit.com)

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