What are REITs, and how is REIT income taxed?

A REIT (real estate investment trust) is a company that owns income-producing property – apartments, warehouses, malls, data centers – and you can buy shares of it like a stock or hold a REIT index fund. REITs let you invest in real estate without being a landlord, and they're required to pay out at least 90% of taxable income as dividends, so yields tend to be high. The tax catch: most REIT dividends are 'ordinary' (taxed at your regular income rate), not the lower qualified-dividend rate that applies to most stocks. A 20% qualified business income deduction can soften that for some investors. Because of the higher tax drag, REITs are often best held inside a Roth or traditional IRA rather than a taxable account. A small REIT slice (often single-digit percentages) can add diversification to a stock-and-bond portfolio.