What Are Qualified REIT Dividends and PTP Income?

Qualified REIT dividends and PTP income are two categories of passive investment income that qualify for a 20% deduction under Section 199A of the tax code. Qualified REIT dividends are the ordinary-income portion of distributions from real estate investment trusts. Qualified PTP income is your share of ordinary business income from a publicly traded partnership that operates a qualifying trade or business. Both sit in their own bucket within the Section 199A deduction, separate from the qualified business income (QBI) rules that apply to people who actively run pass-through businesses, and both were made permanent by legislation signed on July 4, 2025.¹

What Counts as a Qualified REIT Dividend

A real estate investment trust must distribute at least 90% of its taxable income to shareholders each year. Those distributions are taxed as dividends, but only part of what you receive is a qualified REIT dividend for Section 199A purposes.

A qualified REIT dividend is any REIT dividend that is not a capital gain dividend and not qualified dividend income eligible for the lower capital gains tax rates.² In plain terms, it is the ordinary-income slice of your REIT payout. The capital gain slice already gets preferential rates and does not double-dip into Section 199A. The REIT figures out how much of its distribution qualifies and reports that number to you.

Holding Period

You cannot buy shares the day before a dividend, collect the payout, sell, and claim the deduction. You must hold the shares for more than 45 days during the 91-day window that begins 45 days before the ex-dividend date.³ If you also have an obligation to make related payments on the same shares through a short sale or similar arrangement, the dividend does not qualify. Buy-and-hold investors rarely trip on this rule; active traders should watch it.

REITs Held Through Funds

Many investors own REITs indirectly through mutual funds or ETFs. A regulated investment company that receives qualified REIT dividends can pass the Section 199A treatment through to its shareholders by reporting a portion of its own distributions as Section 199A dividends. That amount appears in Box 5 of the Form 1099-DIV the fund sends you, and it qualifies for the 20% deduction at your level.⁴

What Counts as Qualified PTP Income

A publicly traded partnership is a partnership whose interests trade on a securities exchange or secondary market. It looks like a stock but keeps partnership tax treatment: income, gains, losses, and deductions pass through to you, and each year you receive a Schedule K-1 breaking down your share.

The ordinary business income from a PTP can qualify for the Section 199A deduction, but only if the PTP is engaged in a qualified trade or business. Qualified PTP income is the net amount of qualified income, gain, deduction, and loss from that business. PTPs that primarily trade in commodities, futures, or other financial instruments generally do not produce qualifying income.⁵

The statute technically excludes qualified REIT dividends and qualified PTP income from the definition of QBI itself.² That sounds unfavorable but is actually the point. Congress put this income in a separate bucket so it could bypass the W-2 wage and property-basis limits that restrict the main QBI component. The REIT/PTP component is calculated without regard to wages or property at any income level.

The SSTB Trap for PTP Income

The biggest catch with PTP income is the specified service trade or business rule. If the PTP operates in health, law, accounting, consulting, financial services, or any business whose principal asset is the reputation or skill of its employees, the SSTB limitation may wipe out your deduction on that income.⁶

For 2026, the rule works this way based on your taxable income:

Below $403,500 (joint) or $201,750 (other filers): the SSTB rule does not apply, and 20% of the PTP income is deductible regardless of the PTP’s industry.
Within the phase-in range up to $553,500 (joint) or $276,750 (other filers): a declining percentage of SSTB income counts.
Above $553,500 (joint) or $276,750 (other filers): SSTB income from a PTP is fully excluded.

The test runs on your total taxable income, not on whether you personally worked for the PTP. A completely passive investor in a consulting-focused PTP can lose the entire deduction on that income at high enough incomes. Qualified REIT dividends are never subject to the SSTB rule.

Multiple PTPs and Losses

If you hold interests in several PTPs, combine the net qualified income or loss from all of them before applying the 20% rate. A net positive figure gives you a PTP deduction. A net loss produces no PTP deduction for the year and carries forward to reduce future PTP income, and the carryforward keeps running even if the PTP that generated the loss no longer exists.⁷

PTP losses suspended under passive activity or at-risk rules do not count as QBI until the year they finally flow through to your taxable income. When they do, they are treated as coming from a separate trade or business for the QBI calculation.

How the 20% Deduction Is Calculated

The REIT/PTP component of Section 199A equals 20% of the sum of your qualified REIT dividends plus your qualified PTP income for the year.⁵ That number is added to any QBI-component deduction from active pass-through businesses to arrive at your total Section 199A deduction. The combined total cannot exceed 20% of your taxable income minus net capital gains.

Two features make the REIT/PTP component the easier half of Section 199A. There is no W-2 wage or property-basis limit on it at any income level. And even if your active QBI is negative for the year, you can still claim a deduction based on your qualified REIT dividends and PTP income; the REIT/PTP component stands on its own.⁷ The deduction is available whether you itemize or take the standard deduction, and it reduces taxable income rather than adjusted gross income.

How to Report It

Your reporting starts with the documents the REIT or PTP sends you:

Qualified REIT dividends appear in Box 5 of Form 1099-DIV, labeled Section 199A dividends.⁴
Qualified PTP income arrives on Schedule K-1 with an accompanying statement showing the QBI-eligible amount.

You then use one of two IRS forms to calculate the deduction. Form 8995 is the simplified version, available if your 2026 taxable income is at or below $403,500 (joint) or $201,750 (other filers). Everyone else uses Form 8995-A, which adds schedules for wage limitations, SSTB phase-ins, and loss netting.⁸ If you have a qualified business net loss carryforward from prior years, complete Schedule C of Form 8995-A before starting the main form, even when your current-year income is positive. The final deduction flows to Form 1040.

What Changed Starting in 2026

Section 199A was originally enacted in the 2017 Tax Cuts and Jobs Act with a December 31, 2025 sunset. The One Big Beautiful Bill Act, signed on July 4, 2025, eliminated the sunset and made the deduction permanent for tax years beginning after December 31, 2025.¹ The 20% rate stayed the same.

The legislation also widened the phase-in range over which the income-based limits kick in to $150,000 for joint filers and $75,000 for others, up from $100,000 and $50,000. For 2026, the W-2 wage and SSTB limitations begin phasing in at $403,500 (joint) and $201,750 (other filers), and apply in full at $553,500 (joint) and $276,750 (other filers). These thresholds adjust for inflation each year. Only the QBI component is affected by these income-based limits; the REIT/PTP component keeps its clean 20% at any income level, subject to the SSTB rule for PTP income described above.

Estimated Tax Payments

Significant REIT dividends or PTP income can produce a meaningful Section 199A deduction, and that deduction should be reflected in your quarterly estimated payments. The 2026 Form 1040-ES worksheet includes Line 2b for entering your estimated QBI deduction, which then reduces the taxable income figure used for each installment.¹

Estimating this can be tricky because you may not know your total qualified REIT dividends or PTP income until the REIT or partnership issues its tax documents, sometimes well into the following year. A workable approach is to base the estimate on the prior year’s Section 199A deduction and update it as new information arrives. As long as your total estimated payments cover at least 90% of your current-year tax or 100% of your prior-year tax (110% if your prior-year adjusted gross income exceeded $150,000), you avoid the underpayment penalty.

1
Internal Revenue Service. 2026 Form 1040-ES Estimated Tax for Individuals
2
Office of the Law Revision Counsel. 26 USC 199A: Qualified Business Income
3
eCFR. 26 CFR 1.199A-3 – Qualified Business Income, Qualified REIT Dividends, and Qualified PTP Income
4
Internal Revenue Service. Instructions for Form 8995-A (2025)
5
Internal Revenue Service. Qualified Business Income Deduction
6
eCFR. 26 CFR 1.199A-5 – Specified Service Trades or Businesses and the Trade or Business of Performing Services as an Employee
7
Internal Revenue Service. 2025 Instructions for Form 8995-A
8
Internal Revenue Service. About Form 8995, Qualified Business Income Deduction Simplified Computation