The IRS Taxes These 5 High-Yield REIT Dividends as Ordinary Income (Unless You Move Them)
Five REITs yielding up to 15.85% look like easy income, but the IRS takes a bigger bite than most investors expect. See which account type changes the math and how long the damage compounds.
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Most REIT income hits a brokerage account as ordinary income. A REIT distribution counts as qualified dividend income only to the extent the trust designates it in a written notice to shareholders (26 U.S.C. § 857(c)(2)(C)), and REIT distributions of net short-term capital gains are reported as ordinary dividends. A blue chip’s qualified dividends are taxed at the 0%, 15%, or 20% capital gain rates. Most REIT payouts are taxed at your bracket rate instead.
You can deduct 20% of your REIT dividends that qualify under Section 199A, which lowers the effective rate. The math below ignores that deduction and uses the full bracket rate. Per IRS Publication 550 for tax year 2025, a 3.8% net investment income tax can also apply once MAGI passes $200,000 for single filers or $250,000 for joint filers.
A $500,000 REIT Roster Loses $9,317 a Year in a Taxable Account
Put $500,000 into the five REITs below, $100,000 in each. At yields based on November 4 closing prices, the portfolio pays about $38,820 a year. Here is the split at the 24% bracket:
| Account | Gross Income | Tax at 24% | Net Income |
|---|---|---|---|
| Taxable | $38,820 | $9,317 | $29,503 |
| Roth IRA | $38,820 | $0 | $38,820 |
The gap is $9,317 a year. Over 10 years, with no growth and no additional contributions, that adds up to $93,167.
Realty Income: 5.50% Paid Every Month
Realty Income (NYSE:O) owns 15,536 net-lease properties across retail, industrial and data centers in the U.S. and Europe. Its high-yield $3.258 annualized payout yields 5.50%, which is $5,502 per $100,000, and all of it is taxed as ordinary income unless held in a Roth. Q3 AFFO of $1.12 per share covered $0.813 in dividends. Risk: earnings depend on tenant credit across a retail-heavy portfolio.
W. P. Carey: 5.81% With Steady Quarterly Raises
W. P. Carey (NYSE:WPC) leases single-tenant industrial (39% of rent), warehouse (25%) and retail (22%) property. Its $3.80 annualized dividend yields 5.81%, or $5,814 per $100,000. Q3 AFFO of $1.33 covered the $0.950 quarterly payout. Risk: 33% of rent comes from Europe, which adds currency exposure.
Omega Healthcare Investors: 5.53% From Skilled Nursing
Omega Healthcare Investors (NYSE:OHI) owns skilled nursing facilities, senior housing and U.K. care homes. Its $2.72 annualized dividend yields 5.53%, or $5,532 per $100,000. Q3 AFFO of $0.82 and FAD of $0.78 per share both covered the $0.68 dividend. Risk: rent depends on operators, and guidance assumes NewGen pays full rent of $13.3 million per quarter.
EPR Properties: 6.12% Ultra-High Yield From Experiences
EPR Properties (NYSE:EPR) owns theaters, eat-and-play venues, attractions and fitness properties. Its monthly dividend, $3.72 annualized, yields 6.12%, or $6,124 per $100,000. The Q3 AFFO payout ratio was 60%. On the October 29 call, CFO Mark Peterson said, "Our common dividend continues to be very well-covered." Risk: theaters make up 34% of rent.
Annaly Capital Management: 15.85% and the Largest Tax Bill
Annaly Capital Management (NYSE:NLY) is a mortgage REIT. It has leveraged Agency MBS, residential credit and mortgage servicing rights, which carry interest rate and credit risk that property-owning REITs avoid. Its $3.00 annualized dividend yields 15.85%, or $15,848 per $100,000. Q3 earnings available for distribution of $0.80 covered the $0.75 dividend. Risk: book value fell 11.4% to $17.86 last quarter.
Your Bracket Sets the Cost of Keeping These Taxable
The 37% rate is the highest bracket, and it applies only to income that falls inside it. Most readers sit in lower brackets and pay less.
| Bracket | Taxable Net Income | Annual Roth Advantage |
|---|---|---|
| 22% | $30,280 | $8,540 |
| 24% | $29,503 | $9,317 |
| 32% | $26,397 | $12,422 |
| 37% | $24,456 | $14,363 |
Reinvested, the 24% Gap Grows to $277,434
Reinvest the $9,317 annual gap at a conservative 4%, with no price gains assumed. That tax savings reaches $111,857 after 10 years and $277,434 after 20. That is the estimated tax bill for keeping these five outside a Roth under these assumptions, and the still years between a last paycheck and the first RMD are usually the cheapest time to move them (we sized up that window in a free Roth guide here).
Annaly Carries the Largest Ordinary-Income Stream on This List
Roth income is tax free only when it comes out as a qualified distribution. Per Publication 590-B (2025), that means it is taken after the five-year period that starts with your first Roth contribution year. It must also be made on or after age 59½, because of disability, to a beneficiary after death, or for a first home up to a $10,000 lifetime limit.
- Before you file, get the 2025 Form 1099-DIV for each REIT you own and price its ordinary dividends at your bracket rate.
- A phased Roth conversion model can compare the conversion tax with the annual income gap, starting with Annaly, the largest ordinary-income stream on this list.
- REIT income held in a Roth escapes ordinary-income tax on qualified distributions, while stocks that pay qualified dividends receive capital gain rates.
Every year these five REITs stay in a brokerage account, the IRS takes its share of the income first. That income stays in the account when held in a Roth.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
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