Since the late 90's I created my own REIT mutual fund, currently holding 21 Equity REITs, including preferred stock, in a taxable account. This provides a large part of our required household income.
Needless to say, Sec. 199A will be a windfall to those who do what I do. But the challenge here is to estimate what the deduction will be. Here's what I've found so far, after reading this article a couple of weeks ago and speaking with a couple of the IR reps at the REITs I hold....
The Qualifying Business Income is not the REIT dividend....for most, it will only be part of it. The shareholder must reduce the dividend by any capital gains or "Non-Dividend" (read: Return of Capital) that is part of the dividend, as well as any 'qualified dividend' (box 1b of the 1099-DIV). But even this amount may not be the 199A distribution, as QBI must be income from business operations and cannot include things like proceeds for settlements, investment income (interest and dividends) or other non-business income. The IR I spoke to couldn't say how much of the ordinary income will be 199A qualifying, only that it will be a major part of it. This is just a wag, but I'd imagine 90 - 100%.
The other good news is that there is no AGI phase out for taking the 20% deduction as there is for small business, who must include REIT 199A dividends in with QBI of the pass through business and so may lose the 20% deduction if theirs is a service business and their AGI exceeds the phaseout limit....at least as I understand it.
So to get some idea of how much of a deduction I'll qualify for, I looked at the % of REIT dividends that were net ordinary income, multiply this % by expected 2018 dividends, multiplied this by 95% and then took 20% of that, which gives me an estimate of about $3,500 - $4000 deduction. I'm not going to adjust my quarterly estimated payment, as I want to see how this goes the first time.
You can look at last year's 1099-DIV or go to NAREIT's web site and find the 1099-DIV data for a REIT you've purchased to get an idea of the likely tax character of their distribution this year. As a general rule, the healthier the REIT, the more likely the dividend will be 100% ordinary income (PSA is a good example), and for some REITs, REIT Taxable Income is distributed first to preferred stock and any capital gains or ROC are paid to common shareholders...although I've found this can vary by REIT.
https://www.irs.gov/newsroom/tax-cuts-a ... ction-faqs