Does Realty Income Actually Issue a K-1? – Avoid this Mistake + FAQs

Realty Income does not issue a K-1 form; it issues a Form 1099-DIV instead. This is a relief for investors who dread complex tax paperwork.

Realty Income Corporation (ticker: O) is a Real Estate Investment Trust (REIT) that simplifies your tax season by avoiding Schedule K-

1 entirely.

Why does that matter? Let’s dive in with a quick hook:

Every year, thousands of investors scramble to file taxes with late-arriving K-1 forms. But as a Realty Income investor, you can breathe easy.

Realty Income ensures you’re not in that tangled minority, keeping things simple with a standard 1099-DIV.

Here’s what you’ll learn in this comprehensive guide:

• The one tax form Realty Income investors never have to deal with – and why that’s great news 🙂.

• Key differences between REITs and MLPs (Master Limited Partnerships) and how each affects your wallet 💰.

• Common tax mistakes to avoid when reporting REIT dividends (hint: don’t mix them up with qualified dividends or K-1 entries ⚠️).

• Real-world tax scenarios for holding Realty Income in an IRA, taxable account, or as an international investor 🌍 – see exactly how taxes play out.

• Expert answers to FAQs on Realty Income’s tax treatment, from IRS forms to state taxes, in plain English.

Immediate Answer and Context

Does Realty Income issue a K-1? No – Realty Income Corporation issues a Form 1099-DIV, not a Schedule K-1. This immediate answer might surprise new investors who hear “pass-through income” and think of K-1s.

Realty Income is structured as a REIT, which means it’s a corporation that passes most of its earnings to shareholders as dividends without turning those shareholders into partners for tax purposes.

If you own shares of Realty Income (often nicknamed “The Monthly Dividend Company” for its regular payouts), you’ll receive a 1099-DIV at tax time. This form reports the dividends you got over the year.

You will not receive a Schedule K-1 from Realty Income. K-1 forms are typically issued by partnerships (like MLPs or certain LLCs) or S-corporations to their owners. Since Realty Income is neither a partnership nor an S-corp – it’s a publicly traded REIT – it doesn’t use a K-1.

Why is this important? Getting a 1099-DIV instead of a K-1 makes your life easier. The 1099-DIV is a simple summary of dividends, interest, and capital gain distributions, which you or your tax software can easily plug into a tax return. A K-1, on the other hand, can contain numerous lines of income, deductions, and credits that require more complex handling. We’ll explore these differences in depth below.

For context, Realty Income Corporation (O) has chosen a tax-friendly structure. By law, REITs like Realty Income must distribute at least 90% of their taxable income as dividends to shareholders.

In return, the REIT itself generally pays no federal corporate income tax on those earnings. But unlike a partnership (which would push all tax items to you via a K-1), a REIT’s distributions are reported as dividends on a 1099-DIV.

This subtle distinction means you enjoy the benefit of no double taxation (income taxed at corporate level then again to you) without the burden of partnership paperwork. The IRS essentially treats REIT shareholders as receiving dividends (some of which might be taxed as ordinary income to you), not as individual partners in a business.

In summary: Realty Income does not issue a K-1. It issues a 1099-DIV, which is simpler and more convenient. Next, we’ll explore crucial details behind this answer and why it matters for you.

What Investors Should Never Overlook

When investing in REITs like Realty Income, there are key tax considerations you should never overlook. Missing these can lead to costly mistakes or unwelcome surprises at tax time. Let’s highlight the common pitfalls and must-know facts:

• Don’t confuse REITs with partnerships: A rookie mistake is assuming all high-dividend investments work the same. For example, don’t go hunting for a K-1 from Realty Income – it doesn’t exist! Some investors new to REITs might delay filing taxes unnecessarily, thinking a late K-1 will arrive. Overlooking the fact that REITs use 1099-DIV could cause stress or even a tax filing extension you didn’t need. Always know your investment’s structure so you know which tax form to expect.

• Understand your dividend tax status: Realty Income’s dividends are mostly taxed as ordinary income. A common oversight is treating them as “qualified dividends” (which are taxed at lower capital gains rates). They are not qualified in the usual sense! REIT payouts generally do not qualify for the 15% or 20% dividend tax rate that many corporate dividends enjoy. If you mistakenly report them as qualified, you could underpay your taxes and face penalties. Conversely, misreporting could also mean missing out on the special deduction REIT dividends actually get (more on that soon). Always check how your 1099-DIV categorizes the dividend: it often shows ordinary vs. qualified dividends and any capital gain distribution portion. Don’t overlook those labels.

• Watch for return of capital (ROC) portions: It’s easy to ignore the fine print, but sometimes part of a REIT’s dividend is classified as a non-dividend distribution, a.k.a. return of capital. Realty Income’s annual tax breakdown often shows if any portion of your dividends was ROC. Why does this matter? Return of capital is not taxed in the year received (sweet!), but it reduces your cost basis in the stock. Many investors overlook adjusting their cost basis. Later, when you sell your shares, a lower cost basis means a higher taxable capital gain. Overlooking this means you might either pay too much tax now or accidentally too little later. Keep track: if Realty Income says, for example, 10% of your dividends were return of capital, you should reduce your purchase cost basis by that amount per share. It’s a hidden benefit (tax deferral) but requires a bit of record-keeping. Never ignore those year-end tax summaries from the company or your broker.

• Don’t forget the 20% deduction (Section 199A): Here’s a big one many overlook: The IRS currently offers a 20% tax deduction on qualified business income, and REIT dividends fall under this! Under the 2017 Tax Cuts and Jobs Act, most REIT dividends are considered “Section 199A dividends.” This means you can deduct 20% of those dividends from your taxable income (no itemizing required – it’s a pass-through deduction). For example, if you received $1,000 of ordinary REIT dividends, you might only be taxed on $800 after the deduction. This effectively lowers the tax rate on REIT dividends. However, it’s not automatic – you or your tax software must enter the amount of “Section 199A dividends” (often listed in box 5 of Form 1099-DIV). Many investors simply report the dividend as ordinary income and miss that deduction. Never overlook this lucrative tax break!

• Avoid IRA tax traps with partnerships: While Realty Income in an IRA is straightforward (no current tax, no forms to file for you), some investors incorrectly assume all high-yield investments behave the same in retirement accounts. If you chase yield and accidentally buy an MLP (which issues a K-1) inside your IRA, you could trigger UBTI (Unrelated Business Taxable Income) issues. UBTI over $1,000 in an IRA can cause your IRA to owe taxes and require filing a special return (Form 990-T). The good news: Realty Income’s dividends do NOT count as UBTI. There’s no K-1, and no immediate tax headaches in an IRA. The mistake to avoid is assuming no K-1 means no paperwork for any high-yielder; always check the structure. For REITs like O, you’re safe – but if you branch out to MLPs in an IRA, be careful. Overlooking UBTI could result in unexpected tax bills inside what’s supposed to be a tax-sheltered account.

• Stay organized and timely: Lastly, never overlook timing. K-1 forms from partnerships often arrive in March or even April, which can delay your filing. With Realty Income, you usually have all info (1099-DIV) by early February through your brokerage (like Vanguard or Fidelity). This means you can file on time. Don’t procrastinate waiting for a form that’s not coming! Conversely, if you do invest in other K-1 issuing vehicles, mark your calendar or file for an extension proactively. Overlooking deadlines or assuming everything comes on a 1099 can lead to rushed filings or mistakes.

By keeping these points in mind, you’ll avoid the common pitfalls. In short: Know your forms, check your dividend breakdown, use available deductions, and be mindful of tax rules in different account types. This way, you won’t overlook anything crucial when investing in Realty Income or similar assets.

REITs vs MLPs: Why the Tax Structure Matters

When it comes to taxes, structure is everything. REITs (Real Estate Investment Trusts) and MLPs (Master Limited Partnerships) might both offer juicy yields and pass most of their earnings to investors, but the way they do it – and how you report it – differs dramatically. Let’s compare REITs like Realty Income to MLPs and see why their tax structures matter so much:

1. Corporate vs Partnership:
A REIT such as Realty Income is structured as a corporation that elects a special tax status (REIT status). It has shareholders, not partners. It files a corporate tax return but generally doesn’t pay corporate income tax if it meets the payout requirements. In contrast, an MLP is structured as a partnership (often a publicly traded partnership). MLP investors are technically “limited partners,” not shareholders. The partnership itself usually doesn’t pay tax; instead, all those tax items flow through to you.

What this means for you: If you own a REIT, you’re a shareholder receiving dividends (-> Form 1099-DIV). If you own an MLP, you’re a partner receiving a share of income, deductions, etc. (-> Schedule K-1). The REIT shields you from complexity by acting as a corporation; the MLP makes you part of the partnership’s tax web.

2. Tax Forms (1099-DIV vs K-1):

• REITs (e.g., Realty Income): Issue Form 1099-DIV. This form lists your total dividends, broken down into categories like ordinary dividends, qualified dividends, and capital gains distributions. It’s straightforward – a couple of boxes to enter in your tax return. It arrives early in the year (often January 31 via brokerages like Fidelity or Vanguard). No surprise forms later.

• MLPs: Issue Schedule K-1 (typically from Form 1065 partnership return). The K-1 can have numerous lines: ordinary business income, rental income, interest, dividends, capital gains, depreciation, etc., representing your share of each item. It often comes late (March or even as late as early April), because partnerships have a March 15 deadline to send K-1s.

Why it matters: The 1099-DIV is easy to handle with any tax software or preparer. A K-1 requires you to fill out additional schedules (like Schedule E for partnership income). If you have multiple K-1s, it can significantly complicate your return. Plus, waiting for K-1s can push you against the April 15 deadline or force an extension.

3. Income Character and Tax Rates:

• REIT Dividends: As mentioned, these are usually taxed as ordinary income (think of it like getting a paycheck in terms of tax rate, not like getting a qualified stock dividend). However, there’s that 20% pass-through deduction on REIT dividends that helps soften the blow. Part of REIT dividends could be capital gains (if the REIT sold properties at a profit and passed that on) – those would be taxed at capital gains rates. Or part could be return of capital – not taxed immediately. But generally, expect most REIT dividend dollars to be ordinary income on your 1040.

• MLP Distributions: Here’s where it’s interesting: The cash distributions you receive from an MLP are often not fully taxable in the year received. Wait, isn’t that good? Yes – MLPs often give distributions that exceed the taxable income they allocate. Thanks to depreciation and other deductions at the partnership level, your K-1 might show a small taxable income (or even a loss) while you got a big cash payout. The excess cash is essentially a return of capital, which defers taxes by lowering your basis in the partnership units. This means many MLP investors enjoy tax-deferred income until they sell the units (at which point all that deferred tax may come due as capital gains and depreciation recapture). However, any actual income on the K-1 (like your share of the partnership’s taxable income) is typically taxed as ordinary income or whatever category it falls under (some MLPs have interest income, etc., reported accordingly).

Why it matters: If you’re looking for tax-efficient income, MLPs can, in some cases, let you defer taxes year-to-year more than REITs. But it’s a trade-off: you get deferral and potentially lower taxes now in exchange for complexity and a big paperwork puzzle. REITs give you simpler, more predictable tax treatment (no big tax bill upon sale for deferred income, since you were paying along the way, except for any basis adjustments from ROC).

4. State Taxes and Other Headaches:

• REITs: Owning a REIT like Realty Income generally doesn’t entangle you with multiple states. The dividends are considered investment income earned by you at home, not “doing business” in each state where the REIT owns properties. So you typically just pay tax on the dividends to your resident state (as part of your overall income). No separate state filings just because you invested in a REIT.

• MLPs: An MLP often operates in several states (think of a pipeline partnership stretching across states, or an energy partnership with wells in multiple states). Your K-1 will usually have footnotes or supplemental information breaking down your share of income by state. Technically, you might be required to file state income tax returns in each state where the MLP earned significant income on your behalf. Many small investors ignore this if the amounts are tiny (states often have minimum thresholds), but if you invest heavily in MLPs, you could end up needing to file in 5, 10, or more states. Also, some states impose their own withholding or taxes on partnership distributions to out-of-state investors. Additionally, if you ever had an MLP that generates certain types of income (like California source income), you might later get a notice. It’s a headache many don’t foresee.

5. Suitability for Retirement Accounts:

• REIT in IRA: As noted, perfectly fine. No current tax, no K-1, no UBTI. You just enjoy the compounding of reinvested dividends. When you withdraw in retirement (from a traditional IRA), you’ll pay tax on those distributions as ordinary income, same as any other IRA money.

• MLP in IRA: Potentially problematic. While the IRA is tax-sheltered, the IRS says if an IRA (a tax-exempt entity) earns too much business income (like from a partnership), it must pay UBTI tax. MLPs often have “Unrelated Business Taxable Income” reported on the K-1. If all your MLPs in an IRA produce over $1,000 of UBTI combined, the IRA (through the custodian) must file a 990-T and pay taxes from the IRA’s funds. This is something many IRA investors don’t realize until it hits. Plus, holding an MLP in an IRA wastes the benefit of those tax-deferred distributions (because an IRA is already tax-deferred; you could have held a higher-tax asset like REIT in IRA and kept the MLP in taxable, possibly maximizing tax benefits). In short, REITs are IRA-friendly, MLPs are more of a minefield in IRAs.

Bottom line: The tax structure matters because it affects:

• Your paperwork (simple 1099 vs complicated K-1).

• When and how you pay taxes (ongoing ordinary income vs deferred until sale and recapture).

• Where you pay taxes (just federal/state at home vs potentially in many states).

• What accounts are best (REITs work anywhere, MLPs best in taxable to manage the credits and basis, unless careful in IRAs).

For many investors, the simplicity of a REIT’s 1099-DIV and no multi-state or UBTI worries is a huge plus. Others might accept K-1 complexity for the tax deferral and high yields of some MLPs. But you should know what you’re signing up for. Realty Income’s REIT structure means it’s on the simpler side of this trade-off. That’s a conscious choice the company makes to attract a broad base of investors who may shy away from K-1 investments.

Next, we’ll break down exactly what these forms (K-1 and 1099-DIV) mean, so you’re crystal clear on the mechanics.

The Meaning Behind the Form: K-1 vs 1099-DIV Explained

Tax forms can feel like alphabet soup. Let’s demystify the two key forms in question: Schedule K-1 and Form 1099-DIV, and explain why Realty Income uses one and not the other.

Form 1099-DIV – The Dividend Summary

What it is: Form 1099-DIV is an IRS form used to report dividends and distributions to investors. If you own stocks, mutual funds, ETFs, or REITs in a taxable account, you likely receive a 1099-DIV each year from your brokerage. Realty Income, being a dividend-paying stock, falls in this category. The form has boxes for ordinary dividends (Box 1a), qualified dividends (Box 1b), total capital gain distributions (Box 2a), nondividend distributions (Box 3), and a few others including Section 199A dividends (Box 5) for REITs.

How it works: Realty Income (or more precisely, its transfer agent or your broker) will send you a 1099-DIV after year-end. For example, say in 2024 you received $2.40 per share in dividends from Realty Income (just a hypothetical). The 1099-DIV might say:

• Box 1a (Total Ordinary Dividends): $2.40 per share * [number of shares] = [total].

• Box 1b (Qualified): possibly $0 if none of it qualifies for the lower rate (most REIT dividends are not qualified).

• Box 3 (Nondividend distributions): maybe a portion, e.g. $0.20 per share was classified as return of capital, then that amount shows here.

• Box 2a (Capital Gain distributions): if Realty sold some property and distributed long-term gains, that portion shows here (taxed at capital gains rate).

• Box 5 (Section 199A dividends): likely $2.20 per share (the part that was ordinary taxable REIT dividend) would be listed as Section 199A eligible.

You don’t send the 1099-DIV itself with your tax return (the brokerage and IRS get their copies), but you use it to fill in your 1040. It’s very straightforward: e.g., your 1099-DIV might feed into Schedule B (for dividends) and into the Qualified Dividends and Capital Gain Tax Worksheet, etc. Tax software like TaxAct, TurboTax, or H&R Block typically has an easy 1099-DIV input screen. You just type in the numbers, and the software handles it.

Why Realty Income uses it: Because it’s a corporation paying dividends. The IRS requires any entity that paid out $10 or more in dividends to each investor to issue a 1099-DIV. Realty Income’s status as a REIT doesn’t change the requirement to use 1099-DIV – in fact, mutual funds and REITs often have to provide extra detail on that form for special categories (like the Section 199A amount). But fundamentally, Realty Income is complying with IRS rules for corporations: informing you and the IRS about the dividends you got.

Schedule K-1 – The Pass-Through Report

What it is: Schedule K-1 is a form used by pass-through entities (partnerships, S-corporations, estates, trusts) to report each investor’s or owner’s share of the entity’s income, deductions, credits, etc. There are different K-1s for different entity types (Form 1065 K-1 for partnerships, Form 1120S K-1 for S-corps, Form 1041 K-1 for trusts/estates). In our context, when people say “K-1”, they usually mean the partnership K-1. If you invest in an MLP, a private partnership, or certain hedge funds or private equity funds, you get a K-1.

How it works: Let’s say you invested in a hypothetical MLP, “Pipeline Partners LP.” That MLP will file a Form 1065 (U.S. Return of Partnership Income) each year. Along with that, it issues each partner a Schedule K-1 (Form 1065) detailing that partner’s allocated share of everything on that partnership return. The K-1 includes things like:

• Partnership Ordinary Business Income/Loss (Line 1)

• Net rental real estate income (Line 2) – possibly for real estate partnerships

• Interest income (Line 5)

• Dividends (Line 6) – any the partnership received and passes through

• Capital gains (Line 8)

• Section 1231 gains (Line 9) – sales of business property

• Other income (Line 11)

• Section 179 deduction, depreciation, etc. (Line 12, 13)

• Credits (lines 15+)

• Alternativeminimum tax items (line 17)

• Other items like foreign income, oil & gas depletion, etc. might appear depending on partnership.

It’s a lot! Your job as the taxpayer is to take each relevant line and put it in the right spot on your tax return. Often, you’ll need Form 1040 Schedule E (Supplemental Income) to report partnership income/loss. Some items flow to Schedule D (capital gains) or Form 4797 (for Section 1231 gains), etc. And you must attach the K-1 to your tax return if filing by mail, or keep it for records if e-filing.

Why Realty Income doesn’t issue one: Quite simply, because Realty Income is not a partnership. It doesn’t file a Form 1065; it files a corporate return (Form 1120-REIT, a variant of the corporate return for REITs). So there’s no partnership return generating K-1s. Realty Income’s investors are shareholders, not partners, so the IRS says send them a 1099-DIV for their dividends, not a K-1.

Implications for investors:

• A 1099-DIV means simplicity. You just report the dividend totals. You don’t get to individually claim a slice of Realty Income’s depreciation or expenses – the company handles those at the corporate level.

• A K-1 means involvement. If we pretend for a moment that Realty Income was an MLP (thankfully it’s not), you’d be individually accounting for depreciation of properties, interest expenses, etc., in your taxes. Some might like the idea of, say, using depreciation to offset income (that’s what happens in MLPs often), but again, that comes with complexity and often limitations (like passive loss rules that might suspend those losses until you have passive income or sell).

One more difference: Timing: 1099-DIVs are typically issued in January. K-1s often come much later. If you’re waiting for a K-1, you might not be able to finalize your tax return early. This is why some investors avoid K-1 investments if they like to file taxes ASAP or hate doing extensions.

Correcting & Amending: With 1099-DIVs, sometimes there are corrected forms if a company updates its classifications (e.g., in February a REIT might reclassify some of last year’s dividend as ROC vs ordinary). But that usually happens by mid-February. K-1s can also be revised, and an MLP might send a “corrected K-1” in late March or April, which could be really frustrating if you already filed. Or you might not notice a footnote. The partnership might also issue a state K-1 summary. It’s just more paperwork potential.

In summary, K-1 vs 1099-DIV boils down to partnership vs corporation. Realty Income’s use of 1099-DIV signals to you as an investor: “Relax, you’re just dealing with dividends, not becoming a mini-accountant for a share of our business.” And for many investors, especially those not familiar with tax intricacies, that’s a huge selling point of REITs over partnerships.

Next up: Let’s discuss how Realty Income’s structure plays out in terms of actual tax bills, federally and at the state level.

Federal and State Tax Impacts of Realty Income’s Structure

So you’ve got your 1099-DIV from Realty Income – what does it mean for your tax bill? Let’s break down the federal and state tax impacts of Realty Income’s REIT structure, and why it might differ from other investments.

Federal Tax Treatment

Ordinary Income vs Qualified: The majority of dividends from Realty Income will be taxed as ordinary income at the federal level. This means they simply add to your other income (like wages, interest, etc.) and are taxed at your marginal tax rate. For many people, that could be anywhere from 10% to 37%, depending on your bracket. This is unlike qualified dividends from, say, Apple or Coca-Cola stock, which are taxed at 0%, 15%, or 20% (capital gains rates) depending on your income. Why the difference? Because the IRS only grants “qualified dividend” status to dividends paid by taxable C-corporations out of their post-tax profits. REITs don’t pay corporate tax on those profits (they deduct dividends), so the IRS says “Okay, investor, you pay the full ordinary rate.”

Section 199A (QBI) Deduction: As mentioned earlier, current federal law (through at least 2025, unless extended) provides a 20% deduction on REIT dividends for individual investors. These are labeled as “Section 199A dividends” on Form 1099-DIV. Let’s illustrate: If you got $1,000 in REIT dividends from Realty Income, and all $1,000 is ordinary (non-qualified) dividend, you may deduct $200 (20%) when calculating your taxable income. So effectively you’re taxed on $800. If you’re in the 24% bracket, instead of $240 tax on that $1,000, you’d pay about $192. This deduction doesn’t require itemizing; it’s part of the QBI deduction that can be taken alongside the standard deduction. Note that this deduction doesn’t make the dividend “qualified” in the traditional sense, but it provides some relief to REIT investors, narrowing the gap between REIT dividends and normal qualified dividends. Important: not all tax software will automatically assume your REIT dividends get this deduction unless the data is input correctly. Usually, brokers include the 199A dividend info, but double-check.

No Corporate Tax = More Dividend: Because Realty Income doesn’t pay corporate tax on earnings it distributes, it can potentially pay more out. If it were a regular corporation, it might pay 21% federal tax on profits and then pay dividends from the remainder. With a REIT, it pays $0 federal tax on that income (provided it meets requirements), so it has more cash to give you. Of course, you then pay your ordinary tax. Economically, this can be efficient if you’re in a lower bracket or using an IRA. For high earners in top brackets, REIT dividends could be less tax-efficient than qualified dividends – but the 20% deduction helps.

Capital Gain Distributions: Occasionally, part of Realty Income’s dividend might be designated as a long-term capital gain distribution (for instance, if the REIT sold some properties at gains). Those are reported in Box 2a of 1099-DIV and taxed at the favorable long-term capital gains tax rates (15% for most people, 20% for top bracket). If you see any amount in Box 2a from Realty Income, that portion isn’t taxed at ordinary rates. That’s a nice bonus if it happens.

Return of Capital (Nondividend Distribution): If part of the distribution is a return of capital (Box 3 of 1099-DIV), that portion is not taxed at all in the current year. It simply reduces your cost basis in the stock. This means if you reinvest or hold, you’ll only pay when you sell (and possibly at capital gains rates). Realty Income’s annual tax info for shareholders (usually posted on their website or mailed) will tell you what percentage of the yearly dividends fell into each bucket (ordinary, capital gain, return of capital). Many REITs have at least a small return of capital component due to depreciation. For example, if you got $100 in dividends and $5 is labeled return of capital, you only pay tax on $95 now, and you reduce your cost basis by $5 (so when you sell, that $5 will effectively be taxed as part of the gain).

Tax-Deferred Accounts: If you hold Realty Income in a Traditional IRA or 401(k), you don’t pay any federal tax on dividends when received. They compound tax-deferred. You will pay tax when you withdraw funds in retirement (all withdrawals from a traditional IRA are taxed as ordinary income, regardless of source). In a Roth IRA, you wouldn’t pay tax now or on qualified withdrawals later at all – that’s arguably the best case (tax-free REIT dividends!). The key benefit of the REIT structure in IRAs is no UBTI issues as discussed. So the REIT dividend in an IRA is totally tax-sheltered until you take money out (or forever tax-free in a Roth after meeting conditions).

Federal Withholding for Foreigners: If you are a non-U.S. investor (more on this scenario soon), note that U.S. federal law imposes a 30% withholding tax on REIT dividends to foreign investors (unless reduced by a tax treaty). This is a federal tax impact unique to foreign persons.

State Tax Considerations

Now, onto the state level. State taxes vary, but there are some general points:

Your Home State Tax: Most states that have income tax will tax dividends (including REIT dividends) as part of your income. Unlike the federal system, states typically do not give special rates for qualified dividends – they tax all your income at whatever rates. So whether Realty Income’s dividend was qualified or not doesn’t matter for state; it’s taxed as ordinary income by default. (A few states have quirky exclusions or credits for certain dividends, but that’s not common). Essentially, if you live in e.g. California, New York, Illinois, etc., you’ll include the Realty Income dividends in your state taxable income. If part of it was a capital gain distribution or return of capital, states follow federal definitions to some extent (capital gain distributions might get taxed as capital gains if the state distinguishes, but usually states just tax your federal AGI which already includes the capital gains as appropriate).

No Multi-State Filing: The beauty of REITs: You generally won’t have to file tax returns in each state where Realty Income owns properties. Realty Income owns commercial properties across many states, but because you own stock in a corporation (the REIT), you are not personally earning income in those states. The REIT might pay property taxes and maybe state income taxes at the corporate level in certain states (though many states also allow a deduction or no tax if it distributes dividends – states often conform to federal in that REITs get special treatment). But you, the investor, only deal with your own state. This is in stark contrast to partnerships: If you held an MLP with operations in say Texas, Oklahoma, Pennsylvania, etc., you might be considered to have state-source income in those and need to file there (especially if the amount is above a threshold). With Realty Income – no such concern.

State-Specific REIT Rules: A few states had issues with “captive REITs” (as we’ll touch on in the court rulings section), so some states require adding back certain REIT deductions at the corporate level. But as a shareholder, that’s invisible to you. If you’re a large institutional owner (like a corporation owning REIT shares), some states might tax you differently, but for individual investors there’s nothing extra.

Municipal Taxes: If you live in a city or locality with income tax (like New York City, for example), those will also treat the REIT dividend as part of income.

Example: Suppose you live in California, which taxes income up to 13.3% at the top end. Realty Income dividends will be part of your California taxable income. California doesn’t give a lower rate for dividends or capital gains – it’s all ordinary. So high-bracket Californians might pay ~33% federal (37% * 0.8 after the 20% deduction roughly, plus 3.8% NIIT possibly) + up to 13.3% state, making REIT income effectively near 47% taxed! That’s an extreme case, and a good reason those folks often keep REITs in IRAs or other shelters. In Texas (which has no state income tax), you’d only worry about federal. In New York, you’d pay NY state tax (which has top rate ~10.9%) plus maybe NYC tax (~3.9% top). Each state is different, but the key is: no matter the state, a REIT dividend is typically treated as dividend income, not requiring separate partnership filings.

If You Work in Another State: One scenario – irrelevant for Realty Income – is if the K-1 was giving you income in a state you don’t live in. That’s one complexity MLP investors face: filing nonresident returns. With a REIT, you as an individual generally will not file nonresident returns for the REIT’s sake, since the income to you is dividend income (intangible personal property income, usually sourced to your resident state or not sourced at state level at all).

State Tax Credits: If by chance any state does tax you for REIT income (unlikely except possibly if a state had a rule to tax nonresidents on certain real estate holding company dividends – again, not typical), you’d usually get a credit in your home state for taxes paid elsewhere. But likely not needed for REIT holdings.

Bottom Line (State): Holding Realty Income doesn’t drag you into complicated state tax situations. Just include the dividends in your state return like any other interest/dividend. Contrast that with partnerships, where multi-state K-1 data can be a nightmare.

Putting It Together

Realty Income’s structure means:

• Federally, you avoid double taxation (the company pays no tax; you pay at your rate on dividends). You must handle mostly ordinary income, but get a 20% break on it. The 1099-DIV is easily handled by tax software or preparers, and any return-of-capital portion defers tax to later.

• State-wise, you have a clean and straightforward situation – no extra filings except your normal state return, no partnership complications.

In essence, the REIT structure shifts the tax burden to investors but tries to keep it simple for them. Understanding these impacts helps you plan: e.g., choose the right account for holding the stock (taxable vs IRA), estimate your tax liability from dividends, and avoid unpleasant surprises.

Now, let’s illustrate how this plays out with a few concrete scenarios and examples.

3 Real-World Scenarios: How Taxes Play Out for Investors

To really drive home the differences in tax outcomes, let’s look at three different investor scenarios holding Realty Income, and see how taxes play out in each. We’ll consider:

1. An IRA investor (holding O in a tax-deferred retirement account),

2. A taxable brokerage investor (a regular individual account),

3. A non-US (international) investor holding O.

For each, we’ll outline the forms received, current tax due, and any special considerations.

Scenario 1: Realty Income in a Traditional IRA

Alice holds 100 shares of Realty Income in her Traditional IRA at Vanguard. Realty Income pays $248 in dividends to her IRA over the year (for simplicity, assume $2.48/share annual dividend).

• Form Received: Alice does not receive a 1099-DIV for her IRA holdings. IRA accounts are tax-deferred; brokerages do not issue 1099-DIVs for income inside an IRA. (She might see the dividend on her account statement, but not on a tax form.)

• Current Tax on Dividends: None. The $248 stays in Alice’s IRA, maybe gets reinvested. It’s not taxed in the year it’s earned. The IRS doesn’t consider that her income yet.

• Tax Filing: Alice does not report anything about the Realty Income IRA dividends on her 2024 tax return. No Schedule B, no anything. It’s like it never happened, tax-wise.

• Later Implications: When Alice eventually withdraws money from the IRA (say at retirement), those withdrawals will be taxable as ordinary income. At that point, it doesn’t matter that it was REIT dividends originally; all money out of a Traditional IRA is taxed the same. If Alice had a Roth IRA, even the withdrawal wouldn’t be taxed (assuming rules followed).

• Special Considerations: No UBTI issues, since Realty Income dividends aren’t UBTI. If instead of O she had an MLP in her IRA, she might need to check the K-1 for UBTI. But with O, she’s in the clear. Also, there’s no K-1 to send to an IRA custodian, nothing. Clean and simple.

Bottom line for IRA: Realty Income in an IRA is ultra tax-friendly in the short term: no forms, no taxes due. It’s a great candidate for a retirement account, especially if you want to avoid that ordinary income hit each year in a taxable account.

Scenario 2: Realty Income in a Taxable Brokerage Account

Bob holds 100 shares of Realty Income in his taxable brokerage account at Fidelity. He also owns some stocks and mutual funds. For 2024, he received the same $248 in dividends from Realty Income.

• Form Received: Bob gets a Consolidated 1099 from Fidelity. Within it, there’s a Form 1099-DIV section listing $248 of total dividends from Realty Income. It shows, perhaps, $248 in Box 1a (Ordinary dividends), $0 in Box 1b (Qualified), $0 capital gains, $0 nondividend (assuming all was ordinary for this example). It also might list $248 as Section 199A dividends in Box 5.

• Current Tax on Dividends: Bob must pay tax on the $248 for 2024. Since it’s ordinary, if Bob is, say, in the 24% federal bracket, that’s $248 * 24% = $59.52 federal tax. However, Bob can take the 20% REIT dividend deduction: 20% of $248 is $49.6, so he only pays tax on about $198.4 effectively. 24% of $198.4 = ~$47.6. So he saves about $12 due to the deduction. Bob also lives in a state (let’s say New York) with a 6% state tax. So another ~$14.9 in state tax on the $248 (states generally don’t have the 20% deduction – that’s federal only). Total tax ~ $62 in this scenario.

• Tax Filing: Bob will report the $248 dividend on his 1040 (it will flow from 1099-DIV into Schedule B if required and line 3b on Form 1040 as ordinary dividends). He’ll also ensure the $248 is accounted for in the Form 8995 or 8995-A (the QBI deduction form) to take that ~$12 deduction. If using TaxAct or TurboTax, he’ll enter the 1099-DIV details and the software should handle it – maybe asking “enter Section 199A dividends”. Bob doesn’t file any extra form for K-1 because there isn’t one. The process is the same as handling any stock dividend, just noting it’s not qualified.

• Special Considerations: Bob should double-check if any of that $248 was a non-taxable return of capital (in which case Fidelity’s 1099-DIV would show an amount in Box 3 and correspondingly less in Box 1a). If, say, $20 out of $248 was ROC, then $228 is taxable now, $20 is deferred. Bob would reduce his cost basis in the 100 shares by $20 total ($0.20 per share). If Bob reinvests dividends, the basis tracking might get tricky but Fidelity generally adjusts cost basis for you in their records when ROC happens. Still, Bob should keep the year-end tax letter from Realty Income that breaks this out, just to have documentation.

• No K-1 fuss: Bob enjoys that he didn’t have to wait till March for some K-1. By mid-February, he was ready to file (assuming no other issues).

Bottom line for taxable: Realty Income in a taxable account triggers annual taxable income, taxed at ordinary rates (with a partial deduction). It’s a bit less tax-advantaged than some qualified dividend stocks, but far simpler than owning an MLP. Bob might decide it’s worth holding in taxable for the steady income, or he might prefer to keep high-ordinary-income stuff in his IRA and keep more tax-efficient holdings in taxable.

Scenario 3: Realty Income for a Non-U.S. Investor

Carlos is an investor from Spain who holds 100 shares of Realty Income through an international brokerage. How do taxes look for him?

• Form Received: Carlos may still get a 1099-DIV equivalent from his broker, or a year-end statement of dividends. However, crucially, there’s a US withholding tax. For U.S. REIT dividends to foreign investors, the default withholding is 30% of the gross dividend. If Spain has a tax treaty with the U.S. that reduces the rate (commonly to 15% on dividends), and if Carlos submitted the appropriate IRS Form W-8BEN to claim treaty benefits, then maybe only 15% was withheld. Let’s say the treaty rate is 15%. On $248 in dividends, $37.20 would be withheld by the broker and sent to the IRS.

• Current Tax on Dividends: The $37.20 withheld might satisfy Carlos’s U.S. tax obligation entirely. Often, foreign investors don’t have to file a U.S. return if their only U.S. income was passive and fully withheld at source. In Spain, however, Carlos will have to report the dividend income according to Spanish tax law. Spain might give a credit for the 15% U.S. tax paid, so he doesn’t get double-taxed. (If no treaty and 30% was withheld, he’d claim 30% credit). This depends on Spain’s rules but generally that’s how treaties work – avoid double taxation. For U.S. purposes, Carlos’ tax on the REIT dividend was basically that withholding. He doesn’t benefit from the 20% deduction because that’s only for U.S. taxpayers filing a return.

• Tax Filing: Carlos likely does not file a U.S. tax return for this dividend. The withholding is a final tax. One exception: if too much was withheld and he wants a refund, he could file a nonresident tax return (Form 1040-NR) to claim a refund and apply the treaty properly. But if everything was done at source correctly, no U.S. filing is needed. He will, however, declare the net dividend (or gross with credit) on his Spanish tax return.

• Special Considerations: International investors also don’t get a K-1 from REITs. If Carlos invested in a U.S. MLP, he’d face a different issue: many brokers won’t even allow non-U.S. persons to hold MLPs because the tax/reporting is more complex (and even if they did, a foreigner might have to file a U.S. return because effectively connected income from an MLP is taxed differently). With Realty Income, it’s straightforward – just a withheld dividend. Also note: If the REIT had distributed any capital gains to Carlos, U.S. rules might treat some of those as subject to FIRPTA (a law for foreign investment in real estate) which could also be withheld. But typically, for small shareholders, ordinary dividends are just withheld at 30/15%.

• Estate Tax Note: Not an income tax, but foreign investors in U.S. stocks including REITs should be aware, U.S. estate tax can apply if they hold significant U.S. assets when they pass away. That’s separate from income tax but worth knowing. (Treaty might provide some exemptions.)

Bottom line for international: Realty Income is accessible to international investors and just involves withholding tax on dividends. No K-1, no need for complex U.S. filings in most cases. It’s much simpler than if that investor tried to buy a U.S. partnership (which could create a necessity to file U.S. tax returns for effectively connected income).

Let’s consolidate these scenarios in a quick reference table:

These scenarios show that Realty Income’s lack of a K-1 makes life easier across the board. In an IRA, it’s a non-event tax-wise. In taxable accounts, it’s straightforward albeit taxed at ordinary rates. Internationally, withholding takes care of obligations. Compare that with a partnership investment, where even in an IRA you might have complexities (UBTI), in taxable you have K-1s and state issues, and internationally, partnerships can be a nightmare of filings or even blocked by brokers.

Now that we’ve seen how Realty Income shareholders fare, let’s broaden out: who does get K-1s, and how do popular stocks compare?

Who Actually Gets a K-1? Compare Popular Stocks

If Realty Income doesn’t issue a K-1, who does? This is a crucial question, especially if you’re building an investment portfolio and want to know which holdings will complicate your taxes. Let’s compare some popular types of investments and whether they issue a K-1 or 1099-DIV (or other forms):

• Realty Income (O) – REIT – 1099-DIV. (No K-1, as we’ve emphasized). All equity REITs like Realty Income, Simon Property Group, Public Storage, Digital Realty, etc., will send 1099s for their dividends. REIT ETFs and mutual funds also pass dividends to you via 1099 (though they might label the REIT portion so you can get the 199A deduction).

• Regular Corporations (e.g., Apple, AT&T) – C-Corps – 1099-DIV for dividends. If you hold blue-chip stocks, any dividends you get are reported on 1099-DIV. No K-1 because you’re not a partner, just a shareholder. Most well-known companies (tech, consumer, industrial, etc.) fall here. Even high-dividend ones like AT&T or utilities issue 1099s for their dividends.

• Master Limited Partnerships (e.g., Enterprise Products Partners – EPD, Magellan Midstream – MMP) – MLP (Partnership) – K-1. These are popular in the energy sector. EPD, for instance, is a large pipeline partnership and absolutely issues a K-1 to all its unitholders. Other examples: Energy Transfer (ET), MPLX (MPLX LP), AllianceBernstein (AB – yes, AB is an MLP in financial sector), etc. Any “Partners” or “LP” or “MLP” likely means K-1. Some ticker hints: usually if the ticker has an odd structure or the company name includes LP, it’s a partnership. But not always obvious, so check structure.

• Publicly Traded LLCs (treated as partnerships) – K-1. A few companies are structured as LLCs but taxed as partnerships. For example, Brookfield Infrastructure Partners (BIP) is actually a Bermuda LP that issues K-1; Brookfield Renewable Partners (BEP) likewise. They created alternate shares (BIPC, BEPC) that are corporate, for those who hate K-1s. Another one: Blackstone Group used to be a partnership (BX was K-1 issuing) but converted to a corporation in recent years due to this very issue – investors didn’t like K-1s. Many private equity firms did similar (KKR, APO converted to corporations). If a big name stock went public before 2018 and had “Partners” in the name, there’s a chance it was once a K-1 issuer – some changed since.

• Mutual Funds & ETFs – Regulated Investment Companies (RICs) – 1099-DIV. Mutual funds and ETFs typically do not issue K-1s (they are not partnerships; they’re a special type of corporation or trust that passes income through). They send 1099s for dividends and capital gain distributions. One exception: a few niche ETFs (especially commodity funds) are actually structured as partnerships and do K-1s – but these are explicitly labeled usually as such (for example, certain commodity pools or some crypto funds). But mainstream stock and bond ETFs, and all mutual funds, use 1099.

• Business Development Companies (BDCs) – They’re like closed-end funds, taxed as RICs, so they issue 1099-DIV (their distributions are often partly ordinary income, partly capital gains, etc., but no K-1). Example: Main Street Capital (MAIN), Ares Capital (ARCC).

• Trusts (Grantor trusts, etc.) – Some investments like Royalty Trusts (often oil & gas trusts) issue a Grantor Trust K-1-like form or just a tax information letter (not exactly a 1065 K-1, but similar concept of pass-through). Example: Permian Basin Royalty Trust (PBT) – investors get a statement of income/expenses to report, not a 1099 for the income portion. Also, Unit Investment Trusts (UITs) might send a statement of interest/dividends, not K-1 though, typically 1099. If you invest in an estate or trust (like if you have income from a family trust), a Form K-1 from Form 1041 might be given to you. But that’s a different scenario.

• S-Corp Shares (private business usually) – If you own part of an S-Corporation (rare for public markets, but say you have a small business S-corp), you get a K-1 from the Form 1120S. But publicly, I don’t think any major stock is an S-corp because they’re limited to 100 shareholders.

Let’s look at some popular stocks and whether they issue K-1:

From the above:

• Notice how some companies even switched from K-1 to 1099 structures (e.g., Kinder Morgan in 2014, several private equity asset managers around 2018-2019) because having a K-1 was deterring investors (especially institutional and retirement accounts). The complexity just wasn’t worth it to many, so they chose to be normal corporations despite the double-tax cost.

• REITs have consistently been 1099-DIV issuers, which is a selling point for them versus MLPs. If you see commentary on investor forums (e.g., on Reddit or Seeking Alpha), you’ll often see “thankfully no K-1!” as a pro for a REIT or a certain high-yield investment. It’s a real consideration.

Who actually gets a K-1? In summary:

• Partners in partnerships (including MLPs, many private investments, some ETFs that are partnerships).

• Shareholders of S-corps or members of LLCs taxed as partnerships.

• Beneficiaries of certain trusts.

If you stick to REITs, regular stocks, mutual funds/ETFs, and BDCs, you largely avoid K-1s and stick with 1099s. If you venture into MLPs, private equity funds, certain trusts, or directly owning businesses, expect K-1s.

For typical investors looking for income, the K-1 issuers in the public markets are primarily MLPs (energy, natural resources), some financials structured as partnerships, and a few oddballs. Realty Income and other REITs stand apart as a high-yield option without the K-1 complication. That’s one reason REITs have become popular even among income investors who might otherwise look at MLPs – they trade some tax deferral for simplicity and broad eligibility (REITs can be held in any account easily).

Now, understanding who issues what forms sets the stage to appreciate how tax laws and rulings have shaped these structures. Let’s briefly touch on key court rulings and laws that changed how REITs (and similar entities) are taxed.

Court Rulings That Changed How REITs Are Taxed

The tax treatment of REITs didn’t appear out of thin air. It’s the result of laws and, in some cases, court rulings over time that shaped how these entities operate. While Realty Income’s specific question is about K-1 vs 1099, knowing a bit of the history can give context to why REITs are set up this way. Here are some pivotal moments and rulings in REIT taxation:

• 1911 – Eliot v. Freeman: This U.S. Supreme Court case (decided just a couple of years after the corporate income tax was introduced) dealt with whether a trust holding real estate should be taxed as a corporation. The Court ruled that simply holding property in trust for beneficiaries did not make it a taxable corporation. This essentially allowed early real estate trusts to avoid corporate tax – a precursor concept to REITs. It set the stage by suggesting real estate investment vehicles could be pass-through in nature. This wasn’t a REIT (those didn’t exist yet), but it influenced thinking.

• 1960 – REIT Act (Real Estate Investment Trust Act): Congress, and President Eisenhower, ushered in modern REITs with legislation in 1960. The idea was to give small investors a way to invest in large-scale, diversified real estate portfolios and receive rental income without double taxation – much like mutual funds allow collective investing in stocks with single taxation. The law established the basic rules: at least 90% of taxable income must be distributed to shareholders, at least 75% of assets in real estate, 75% of income from real estate sources, and other requirements (like at least 100 shareholders, and no five investors owning more than 50%, etc., to ensure it’s widely held). This was legislative, not a court case, but it fundamentally changed the tax landscape by carving out REITs as a special type of entity.

• 1964 – Real Estate Investment Trust of America vs. CIR: This was an early tax court case testing the application of REIT rules. Without diving into the weeds, the case helped clarify what qualified as a REIT under the new law. The REIT in question had some complicated financing and default situation (from what records show) and there was a dispute on how it should be taxed. The resolution reinforced that if you meet the REIT tests, you get the pass-through treatment. It was an important affirmation that REITs are distinct from regular corporations for tax purposes.

• 1986 – Tax Reform Act changes: By the mid-1980s, REITs hadn’t become very mainstream yet. The Tax Reform Act of 1986, championed by President Reagan, included provisions to relax some REIT rules. It allowed, for example, REITs to be internally managed (previously, REITs had to hire external advisors and couldn’t manage properties directly – the law changed to let them manage, which made the business more practical). It also clarified rules on what income qualifies. After 1986, the REIT sector began to grow rapidly, as the restrictions that hindered them were eased. This legislative change was crucial in making REITs a viable large-scale investment class, and thus more companies like Realty Income started forming in the subsequent years.

• 1990s – The UPREIT Structure Emerges: Not a single ruling, but a structural innovation. In 1992, the first UPREIT was created (Kimco Realty is often credited as one of the pioneers). UPREIT (Umbrella Partnership REIT) means the REIT doesn’t own properties directly, but owns a partnership that owns the properties. This allowed property owners to contribute real estate to the partnership in exchange for operating partnership units, deferring capital gains (like a 721 exchange). Courts and IRS rulings in the ‘90s blessed this structure, which became standard for many equity REITs (including likely Realty Income – O operates as an UPREIT too). The significance: it didn’t change taxation for shareholders (still 1099-DIV), but it allowed REITs to grow tax-efficiently by acquiring properties without the seller taking an immediate tax hit.

• 2004 – Staples (and other “captive REIT” cases): Large corporations in the 1990s/2000s (like Staples, Sherwin-Williams, etc.) tried to use “captive REITs” to avoid state taxes. They’d create a subsidiary REIT that owned their store properties, pay rent from the operating company to the REIT, deduct that rent (so no state corporate tax on that income), and the REIT would pay out the income as dividends back to the parent (which often wasn’t taxed by that state due to loopholes). Several states took companies to court or changed laws. For instance, Staples had a court case in Massachusetts and other jurisdictions around 2004-2007. Eventually, states like North Carolina, Massachusetts, and others passed legislation denying the tax benefits of captive REITs or requiring combined reporting. The court rulings and settlements around these cases affirmed that while federally a captive REIT still qualifies as a REIT, states can penalize or disallow the intended benefit. This closed a loophole and ensured REIT benefits were meant for legitimate widely-held REITs, not single-company tax dodges.

• 2010s – IRS Private Rulings on REIT Assets: As new asset classes (cell towers, billboards, data centers) wanted REIT status, the IRS issued private rulings treating things like cellular infrastructure or billboards as real property for REIT purposes. E.g., IRS ruled that billboards count as real estate, enabling Lamar Advertising to convert to a REIT. They also allowed data center rents, document storage facilities, solar farms with land leases, etc., to fit in. These weren’t court cases, but administrative decisions that expanded what can be a REIT. It changed taxation by bringing more companies into the REIT fold (with pass-through treatment).

• 2015 – PATH Act (FIRPTA reform): The Protecting Americans from Tax Hikes Act made some adjustments to REIT rules. Notably, it limited tax-free spinoffs involving REITs (companies were spinning off real estate into a REIT; after 2015, a C-corp generally can’t spin off a REIT tax-free, unless both are REITs). It also changed some foreign investment rules (FIRPTA) making it easier for foreign investors to own REIT stocks (by increasing the ownership threshold before FIRPTA applies from 5% to 10% for publicly traded REITs). This wasn’t a court ruling but a law that impacted REIT taxation: it slowed down the REIT conversion trend for operating companies but encouraged more foreign capital into REITs by easing some taxes.

• 2017 – Tax Cuts and Jobs Act (TCJA): This law, in addition to cutting corporate rates (less directly relevant to REITs since they don’t pay corporate tax if compliant), introduced the 20% deduction for REIT dividends for individuals. This was a huge change for investors: effectively, Congress acknowledged that if pass-through businesses got a deduction (they gave partnerships and S-corp income a 20% deduction under Section 199A), REIT investors should too, even though they get 1099-DIVs. This wasn’t a court ruling but a legislative update that significantly changed how REIT dividends are taxed to individuals (lowering the effective rate).

• 2020 – Tax Court case on REIT vs. partnership income? There may have been some recent cases, for example about whether certain income qualifies under REIT rules. Hypothetically, if a REIT had too much non-qualifying income, could it still avoid being taxed as a corporation? The IRS can revoke REIT status if rules aren’t met, which would change tax treatment dramatically. But actual court cases there are rare since REITs try hard to comply. A noteworthy one: Florida Tax Court decision (2015-ish) – Actually, there was a case about state taxation: REIT dividends to a corporate parent (a bank) being taxed by the state (I recall a case in Maryland or Louisiana Supreme Court, which held states can tax the parent on REIT dividends, preventing state tax avoidance). For example, Maryland vs. ConAgra around 2010 tackled a related use of an intangible holding company; in the REIT space, a Louisiana case upheld taxing a company on dividends from its captive REIT. These state court cases reinforced that states could shut the door on internal REIT shenanigans.

In essence, the legal environment around REITs has generally trended towards:

• Encouraging genuine REIT activity (making it easier for real estate companies to be REITs, as in 1986 changes, 2010s asset rulings, etc.).

• Preventing abuse (captive REIT loopholes closed by states, spinoff restrictions in 2015).

• Parity and relief for investors (199A deduction in 2017).

How does this circle back to Realty Income and the K-1 question? All these developments ensured that:

• Realty Income can operate as a REIT fairly easily (thanks 1986 reforms and subsequent clarifications).

• It remains a corporation for shareholders (hence you get a 1099-DIV, not suddenly a K-1).

• Investors get some tax relief (20% deduction) to offset the high ordinary rates (thanks to TCJA).

• No sneaky conversion of O into something that would issue a K-1 is on the horizon, because laws discourage flipping to partnership form for publicly traded entities outside specific areas.

By understanding this context, you see that your experience as an investor (receiving a 1099-DIV) is the result of deliberate tax policy decisions. REITs were specifically designed to democratize real estate investing without imposing partnership tax complexity on millions of investors. Court rulings and tax laws over the decades have maintained that balance.

Now, history lesson aside, let’s get practical again – what should you do to avoid errors when filing your taxes? Up next: pitfalls to avoid.

Avoid These Costly Filing Errors

Even with the simpler 1099-DIV form, investors can make mistakes when reporting their dividends or other investment income. Here are some costly filing errors to watch out for (and how to avoid them):

• Mistaking a REIT dividend for a qualified dividend: We touched on this, but it’s worth repeating. If you or your tax preparer accidentally report Realty Income’s dividend as a “qualified dividend” (maybe by assuming all Box 1a dividends are qualified), you’ll calculate too low a tax. The IRS or software might not catch it if you override something. This could lead to an underpayment and potential interest/penalties later when corrected. Solution: Always cross-check Box 1b on your 1099-DIV. For REITs like O, Box 1b (qualified dividends) will typically be zero or very small relative to Box 1a. Don’t force it to be qualified if it’s not. Let the software categorize correctly.

• Forgetting the 199A dividend deduction: This is the flip side error – overpaying tax because you didn’t claim the 20% deduction. Some DIY filers might not realize they need to do an extra form or step to get that deduction. If you just enter the dividend in the ordinary income line and do nothing else, you might pay tax on the full amount. Solution: Look at your 1099-DIV for any amount labeled “Section 199A dividends” (Box 5). Make sure you input that into your tax software or tell your accountant. It should generate Form 8995 or 8995-A to take the deduction. If you have a CPA, mention that you have REIT dividends so they don’t miss it – a good CPA should know, but it never hurts to confirm.

• Ignoring corrected 1099s: Brokerages sometimes issue a corrected 1099-DIV in February or even March if a company like Realty Income updates its dividend characterization. For example, initially all was reported as ordinary, but then the company provides final numbers that include some return of capital. If you file early (say early February) and a corrected 1099 comes mid-Feb, you might have to amend your return if the amounts changed significantly. Solution: Wait until at least mid-February (or whatever date your broker indicates that 1099s are final) before filing, especially if you own investments known for reclassifications (REITs, mutual funds, etc.). If you do get a corrected form after filing and the change is material, file an amended return to avoid discrepancies (the IRS gets the corrected info too).

• Not reporting a small dividend at all: Maybe you drip-invested and got only $5 from Realty Income because you bought late in the year. If it’s under $10, you might not get a 1099-DIV (because issuers don’t have to send for under $10), but guess what – it’s still taxable. Some investors think no form means no tax. Technically, you must report and pay tax on any dividend income even if no 1099 was issued. Now, if it’s just $5, realistically the IRS won’t fuss, but to be squeaky clean, you should include it. On the flip side, if you do get a 1099, absolutely report it. The IRS matches these, and missing a 1099-DIV is a common cause for a CP2000 notice (an automated letter proposing more tax) a year later. Solution: Keep track of all dividends from statements, and reconcile with forms. Report what’s required.

• Entering K-1 info in the wrong place (or vice versa): If you do have both REITs and MLPs, be careful not to mix their tax info. For example, don’t try to input an MLP’s distribution amount as a dividend. Conversely, don’t ignore your K-1 because you think the 1099-DIV covered everything. Some brokers provide a “dividend” 1099 that shows something for an MLP (like a distribution labeled as nondividend). But you still must use the K-1 for actual taxable income. Solution: Understand that K-1 income is reported separately from 1099 income. Use the K-1 import or forms in your tax software for MLPs, and the 1099-DIV for REITs and stocks. Each has its place.

• Fumbling state tax credits for partnerships: Not directly about REITs, but if you have MLPs with taxes paid to states on your behalf (some partnerships withhold state tax for nonresidents), you might get a credit on the K-1. Don’t forget to claim those credits on your state returns, or you’re leaving money on the table. With Realty Income, luckily, you don’t have that situation.

• Overlooking basis adjustments: If part of your REIT dividend is return of capital, or if you reinvest dividends, track your basis. When you sell, your taxable gain is (Sale proceeds minus adjusted basis). Costly error: forgetting that your basis was reduced by ROC – you then under-report your gain, which could trigger an IRS correction later. Or if you reinvested dividends and forget to include those in your basis (for non-ROC portions, reinvested dividends increase basis because they’re new purchases effectively), you might over-report gain and overpay tax. Solution: Maintain a simple log or rely on brokerage records (most will adjust average cost or track dividend reinvestments). Keep the annual shareholder tax info that shows ROC percentages, so you can adjust accordingly.

• UBTI in IRA not handled: If you did inadvertently hold an MLP in an IRA and got a K-1 showing UBTI over $1,000, ignoring it is an error. The IRS can come after the IRA for taxes. Solution: As said, avoid MLPs in IRA or if you have them, ensure the custodian files 990-T for the IRA and pays any due tax from the IRA. With REITs, usually zero UBTI, so not an issue.

• Mismatching forms due to name changes or mergers: If a company changed its structure mid-year (e.g., converted from partnership to corporation), you might get both a K-1 (for part of year) and a 1099 (for the rest). Or if a REIT spins off something, you might get a specialized form. Always read any mail from companies and don’t assume it’s a duplicate. File all forms appropriately.

• Using the wrong software section: Tax software often has separate interview sections for “Stocks, Mutual Funds, Dividends” and another for “K-1s”. If you accidentally plug a K-1 number into a dividend section or vice versa, the calculations will be wrong. Solution: Slow down and double check. If you see a K-1, head to the K-1 section. If it’s a 1099-DIV, enter in the dividends area.

• Forgetting foreign taxes paid credit: Slightly unrelated to REITs, but if you had foreign tax withheld on any dividends (some foreign stocks do that, or funds), don’t forget to claim the foreign tax credit. Realty Income dividends to Americans typically don’t involve foreign tax (since Realty’s income is US-based mostly, it doesn’t withhold anything for foreign).

Most of these errors come down to mixing up forms or not paying attention to the classifications on forms. The best defense is:

• Stay organized: Keep all tax documents in one place and checklist them.

• Understand what you own: Know if something is a partnership or corporation.

• Leverage software checks: Many tax programs will alert you if something seems off (like claiming more qualified dividends than total dividends).

• When in doubt, ask: Tax forums, a CPA, or even the brokerage’s tax support can clarify issues.

For Realty Income specifically, remember: No K-1 will arrive. Don’t waste time looking for it. If someone (like a tax preparer unfamiliar with REITs) asks “Where’s the K-1 for this high dividend stock?”, confidently tell them it’s a REIT and only issues a 1099-DIV.

Avoiding these errors will save you from IRS notices and ensure you don’t overpay or underpay. Now, to wrap up our comprehensive guide, let’s compile a quick glossary of key terms and a handy pros-and-cons table, then finish with some expert FAQs.

Glossary of Must-Know Tax Terms

Realty Income Corporation (O) – A popular real estate investment trust known as “The Monthly Dividend Company” for its regular payouts. It’s structured as a REIT, meaning it must pay out most of its income and doesn’t issue K-1s, only 1099-DIVs.

REIT (Real Estate Investment Trust) – A company that owns/finances income-producing real estate and elects special tax status. REITs pay no corporate income tax on earnings distributed as dividends, as long as they meet certain requirements (90% payout, etc.). Investors get dividends taxed mostly at ordinary rates (with a 20% deduction perk). REIT shareholders receive Form 1099-DIV, not K-1s.

MLP (Master Limited Partnership) – A publicly traded partnership, commonly in energy or natural resources. MLPs are pass-through entities (no corporate tax); they issue Schedule K-1 to investors who are considered partners. They often have high yields and complex tax features (like tax-deferred distributions and state-by-state income).

Form 1099-DIV – The IRS form for reporting dividends and distributions to investors. It shows total dividends, qualified portion, capital gain distributions, nondividend distributions (return of capital), and special things like Section 199A dividends. If you own stocks or funds in a taxable account, you get this each year.

Schedule K-1 – A tax schedule used by pass-through entities to report each investor’s share of income, deductions, etc. Common versions: K-1 (Form 1065) for partnerships/MLPs, K-1 (Form 1120S) for S-corps, K-1 (Form 1041) for trusts/estates. K-1s often arrive later than 1099s and require more involved tax reporting.

Ordinary Dividends – Dividends that are taxed as ordinary income (the standard income tax rates). REIT dividends are generally ordinary. These are reported in Box 1a of 1099-DIV.

Qualified Dividends – Dividends eligible for lower long-term capital gains tax rates (0%, 15%, 20% depending on income). Reported in Box 1b of 1099-DIV. To be qualified, dividends must be from a qualifying foreign or domestic corporation and you must meet holding period requirements. REIT dividends are typically not qualified (except any portion designated as qualified, which is rare or small).

Return of Capital (ROC) – Also called nondividend distribution (1099-DIV Box 3). This is the portion of a distribution that is not paid out of earnings or profits. It’s essentially giving the investor back part of their investment. Not taxable when received, but it lowers the cost basis of the investment. When you sell, you calculate gain using the reduced basis, thereby paying tax later (deferral). Many REITs and MLPs distribute some ROC due to depreciation sheltering income.

Section 199A Dividends – Also known as Qualified Business Income (QBI) dividends or “REIT dividends” for the 20% pass-through deduction. Under the Tax Cuts and Jobs Act, individuals can deduct 20% of qualified REIT dividends (and some other pass-through income). These dividends are reported in Box 5 of 1099-DIV. They still are taxed at ordinary rates on the remaining 80%.

UPREIT (Umbrella Partnership REIT) – A structure where a REIT holds its properties in a partnership (Operating Partnership or OP). The REIT issues shares to the public and OP units to property contributors. Shareholders of the REIT still get normal REIT dividends (1099-DIV). OP unit holders (often the original property owners) can typically convert units to REIT shares and are often aligned with shareholders. The UPREIT helps defer taxes on property contributions. Realty Income is an UPREIT; it owns interest in an operating partnership that owns the actual properties. But importantly, shareholders don’t get a K-1—the partnership’s results flow up to the REIT, and then to shareholders via dividends.

Pass-Through Entity – A business that doesn’t pay entity-level tax; instead, income “passes through” to owners to be taxed. Examples: partnerships, S-corps, REITs (for the most part). REITs are a special pass-through because they are corporations legally but get pass-through treatment if they meet conditions. Pass-through means K-1s in many cases (except REITs and mutual funds use 1099s to convey the income).

UBTI (Unrelated Business Taxable Income) – Income earned by a normally tax-exempt entity (like an IRA, 401k, or nonprofit) that is unrelated to its exempt purpose and thus taxable. In context, if an IRA invests in a partnership that runs an active business, the IRA could receive UBTI via a K-1. If UBTI exceeds $1,000, the IRA owes tax. REIT dividends are generally not UBTI to an IRA (they’re passive investment income, and plus, they come from a corporation). Limited partnerships in IRAs can create UBTI issues though.

FIRPTA (Foreign Investment in Real Property Tax Act) – A U.S. law that imposes taxes on foreign persons disposing of U.S. real property interests. It treats gain on sale of U.S. real property (or certain REIT distributions attributable to such gain) as effectively connected income subject to U.S. tax for foreigners. For foreign investors in REITs: if the REIT distributes capital gains from property sales, that portion could be subject to FIRPTA withholding. Also, if a foreigner owns more than 10% of a REIT and sells the stock, FIRPTA might tax the gain. The 2015 PATH Act eased some of this (raised threshold from 5% to 10%). It’s complex, but generally foreign small investors in REITs just see a flat withholding on dividends and no extra unless they are large holders.

Tax-Deferred Account – An investment account like a Traditional IRA, 401(k), 403(b) where income inside isn’t taxed currently. Taxes are deferred until withdrawal (or never in case of a Roth’s qualified distribution). Great for holding things that would otherwise be taxed heavily currently (like REIT dividends or bond interest).

Taxable Account – A regular brokerage account. Income and gains in it are generally taxable in the year realized. Opposite of tax-deferred. Use these for more tax-efficient holdings if possible (long-term gains, qualified dividends, municipal bonds for high earners, etc.), while high-tax-effort stuff like REITs can go in IRAs if you want to minimize yearly taxes.

Publicly Traded Partnership (PTP) – Synonymous with MLP in many cases. It’s any partnership with interests traded on an exchange. The IRS generally taxes PTPs as corporations unless 90% of their income is qualifying (like natural resource extraction/transport, real estate rents, etc.) – which is why we have energy MLPs and REITs but not, say, a tech company as an LP.

Captive REIT – A REIT that is mostly owned by a single company or a small group, often used historically to try to avoid taxes (like a corporate subsidiary REIT). Tax authorities frown on these; many states have rules taxing them or disallowing the benefits if ownership isn’t sufficiently diverse. Federal law requires 100 shareholders and not too concentrated ownership, so truly captive REITs can’t qualify as REIT for federal unless they do some tricks like hiring some dummy outside shareholders. Anyway, not directly relevant to an individual, except as trivia in tax planning history.

With these terms defined, you should feel comfortable with the jargon thrown around in tax discussions about REITs, K-1s, etc. Finally, let’s weigh the pros and cons of Realty Income’s tax treatment, and answer some frequently asked questions to clear up any remaining doubts.

Pros and Cons of Realty Income’s Tax Treatment

Realty Income’s choice to be a REIT and not an MLP or other structure comes with advantages and disadvantages for investors. Here’s a quick summary in table form:

As you can see, many of the “cons” are simply the flip side of the pros. It comes down to simplicity vs. slight tax efficiency differences. For most investors, the convenience and peace of mind of not dealing with K-1 forms far outweigh the lost benefits of any additional deferral or capital gains treatment they might have gotten elsewhere. And importantly, Realty Income’s tax treatment is exactly in line with its peers – all REITs have this profile, and it hasn’t stopped them from being popular investments.

If you absolutely need to avoid ordinary income, you could hold REITs in your Roth IRA, for instance. But if you crave the potentially lower taxed cash flow of an MLP, you’d have to accept those K-1 headaches.

Now, to wrap up our guide, let’s address some rapid-fire FAQs to clear up any lingering confusion:

Expert FAQs

Q: Does Realty Income issue a K-1 tax form?
A: No. Realty Income does not issue a K-1. Investors receive a Form 1099-DIV for Realty Income’s dividend distributions (K-1s are for partnerships, and Realty Income is a REIT corporation).

Q: Do all REITs avoid K-1 forms?
A: Yes. Virtually all publicly traded REITs send 1099-DIVs to shareholders, not K-1s. REIT investors are treated like stockholders receiving dividends, not partners.

Q: Are Realty Income’s dividends qualified for the 15% tax rate?
A: No. Most of Realty Income’s dividends are not qualified for the lower 15%/20% tax rate. They are taxed as ordinary income, although U.S. investors can deduct 20% of the REIT dividends under current tax law.

Q: Can I hold Realty Income in an IRA without tax issues?
A: Yes. Holding Realty Income in an IRA (Traditional or Roth) is tax-efficient. Dividends accrue without current tax, and there are no K-1 or unrelated business taxable income (UBTI) issues to worry about.

Q: Do I need to file state taxes in every state Realty Income operates?
A: No. As a Realty Income shareholder, you only report dividends on your own state return (as part of your income). You don’t file in the states where the REIT’s properties are located.

Q: Does an international investor pay U.S. tax on Realty Income dividends?
A: Yes. Non-U.S. investors typically have a 30% U.S. withholding tax on REIT dividends (often reduced to 15% by tax treaties). This is taken at source, and no K-1 is involved.

Q: Is a K-1 more complicated than a 1099-DIV?
A: Yes. A K-1 is significantly more complex, reporting numerous income and deduction items that must be individually accounted for on a tax return. A 1099-DIV is a simple one-page summary of dividends.

Q: Do REIT dividends get the 20% pass-through deduction?
A: Yes. REIT dividends are eligible for the 20% Section 199A deduction on qualified business income. Investors can deduct 20% of their REIT dividend income, reducing the effective tax rate.

Q: Did the 2017 tax law change how REIT dividends are taxed?
A: Yes. The Tax Cuts and Jobs Act of 2017 introduced the 20% deduction for REIT dividends, lowering the effective tax burden on those dividends for individual investors.

Q: Who generally issues K-1 forms to investors?
A: K-1 forms are issued by partnerships, S-corporations, and certain trusts. For example, MLPs, private partnerships, and S-corp businesses send K-1s. Regular corporations and REITs do not.

Q: Are REIT dividends better in a taxable account or retirement account?
A: Generally, retirement accounts are better for REITs. Yes – REIT dividends are ideal for tax-deferred or tax-free accounts to avoid yearly taxes. In a taxable account, they’re fine but taxed at ordinary rates each year.

Q: If I didn’t get a K-1 for Realty Income, do I still pay tax on the dividends?
A: Yes. You pay tax on Realty Income’s dividends as reported on the 1099-DIV. The absence of a K-1 doesn’t mean the income is tax-free; it just means it’s reported differently (and more simply).

Q: Can a REIT ever issue a K-1?
A: No, not if it’s functioning as a REIT. REITs by definition are corporations for tax purposes, so they issue 1099-DIVs. If a company issues a K-1, it’s not a REIT but a partnership or similar entity.