How the IRS Taxes Five High-Yield REIT Dividends — and Why Account Choice Matters

Five REITs with yields as high as 15.85% can look like a simple way to generate income, but the tax bill is often larger than many investors anticipate. The account you use can change the outcome dramatically, and the difference can compound over time.

In a brokerage account, most REIT income is taxed as ordinary income. A REIT distribution is treated as qualified dividend income only to the extent the trust identifies it in a written notice to shareholders under 26 U.S.C. § 857(c)(2)(C), and any distribution of net short-term capital gains is also reported as an ordinary dividend. By contrast, qualified dividends from many blue-chip stocks are taxed at the 0%, 15%, or 20% capital gains rates. Most REIT payouts are taxed at your ordinary bracket instead.

You may also be able to deduct 20% of REIT dividends that qualify under Section 199A, which can reduce the effective tax rate. The figures below do not include that deduction and instead use the full bracket rate. IRS Publication 550 for tax year 2025 also notes that a 3.8% net investment income tax can apply once MAGI exceeds $200,000 for single filers or $250,000 for joint filers.

A $500,000 REIT Basket Loses $9,317 a Year in a Taxable Account

If you split $500,000 evenly among the five REITs below, with $100,000 in each, the portfolio generates about $38,820 a year based on yields tied to recent closing prices. At a 24% bracket, the difference between a taxable account and a Roth IRA looks like this:

The annual gap is $9,317. Over 10 years, with no growth and no added contributions, that comes to $93,167.

Realty Income: 5.50% Paid Monthly

Realty Income (NYSE:O) owns 15,536 net-lease properties across retail, industrial and data-center assets in the United States and Europe. Its $3.258 annualized dividend yields 5.50%, or $5,502 per $100,000, and all of it is taxed as ordinary income unless the shares are held in a Roth. Q3 AFFO of $1.12 per share covered the $0.813 dividend. The main risk is tenant credit in a portfolio heavily weighted toward retail.

W. P. Carey: 5.81% With Consistent Quarterly Increases

W. P. Carey (NYSE:WPC) leases single-tenant industrial properties, which account for 39% of rent, along with warehouse properties at 25% and retail properties at 22%. 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. One risk factor is that 33% of rent comes from Europe, creating currency exposure.

Omega Healthcare Investors: 5.53% From Skilled Nursing Properties

Omega Healthcare Investors (NYSE:OHI) owns skilled nursing facilities, senior housing and care homes in the U.K. 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. The risk is that rent depends on operators, and guidance assumes NewGen pays the full $13.3 million in quarterly rent.

EPR Properties: 6.12% Ultra-High Yield From Experience-Based Properties

EPR Properties (NYSE:EPR) owns theaters, eat-and-play venues, attractions and fitness properties. Its monthly dividend, equal to $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.” The company’s largest exposure is theaters, which account for 34% of rent.

Annaly Capital Management: 15.85% and the Biggest Tax Hit

Annaly Capital Management (NYSE:NLY) is a mortgage REIT. It uses leverage in Agency MBS, residential credit and mortgage servicing rights, which carry interest-rate and credit risk that property-owning REITs do not face. 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. Book value dropped 11.4% to $17.86 in the latest quarter.

Your Tax Bracket Determines the Cost of Keeping These Shares Taxable

The 37% rate is the top bracket, and it applies only to income that falls within that range. Many readers are in lower brackets and would owe less.

Reinvesting the 24% Gap Could Grow It to $277,434

If the $9,317 annual difference is reinvested at a conservative 4%, with no assumed price appreciation, the tax savings grow to $111,857 after 10 years and $277,434 after 20. Under those assumptions, that is the estimated tax cost of keeping these five REITs outside a Roth. The years between a final paycheck and the first RMD are often the least expensive time to move them.

Annaly Produces the Largest Ordinary-Income Stream on the List

Roth income is tax-free only when it qualifies as a qualified distribution. According to Publication 590-B, that means it must be taken after the five-year period that begins with the year of your first Roth contribution. It must also be made on or after age 59½, due to disability, to a beneficiary after death, or for a first home purchase up to a $10,000 lifetime limit.

• Before filing, review the 2025 Form 1099-DIV for each REIT you own and tax the ordinary dividends at your bracket rate.
• A phased Roth conversion model can compare the conversion tax against the annual income gap, starting with Annaly, which has the largest ordinary-income stream on this list.
• REIT income held in a Roth avoids ordinary-income tax on qualified distributions, while stocks that pay qualified dividends can receive capital gains treatment.

Each year these five REITs remain in a brokerage account, the IRS collects its share of the income first. Held in a Roth, that income stays in the account.