Treasury Issues Final 199A Regulations Confirming 20% Deduction for Qualified REIT Dividends Applies to Mutual Fund Shareholders

The Treasury Department released final regulations on June 24 stating that the tax code’s section 199A 20% deduction applies to qualified REIT dividends received by mutual fund shareholders.

Section 199A’s 20% deduction for certain business income was enacted as part of the legislation known as the Tax Cuts and Jobs Act in 2017 (TCJA), Pub. L. No. 115-97.

The conclusions reached in both the proposed and final regulations were consistent with the recommendations made in Nareit's Oct. 1, 2018 comment letter and the April 9, 2019 joint comment letter submitted by Nareit and the trade association for the mutual fund industry, The Investment Company Institute (ICI).

Section 199A provides a deduction of up to 20% of the qualified business income from a U.S. trade or business operated through a sole proprietorship or through a partnership, S corporation, trust, or estate. In addition, section 199A provides taxpayers other than a corporation a deduction of up to 20% of their combined qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income, including qualified REIT dividends and qualified PTP income earned through passthrough entities.

Congress intended that all individuals receiving qualified REIT dividends should be permitted to claim the 20% deduction under section 199A and granted the Treasury Department broad regulatory authority to effectuate this intent.

The final regulations formalize the conclusion of the proposed regulations. The IRS also issued a press release regarding the final regulations.

Nareit said it “commends the Treasury Department and the IRS for finalizing this helpful guidance that will continue to allow millions of Americans, including people of moderate incomes, to obtain the tax deduction for REIT dividends as Congress intended.”

(Contact: Dara Bernstein at dbernstein@nareit.com)

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