Does a non-traded REIT send a K-1 or a 1099? My brother-in-law says K-1

A REIT is taxed as a corporation, so it reports what it pays you on Form 1099-DIV, the same form a stock dividend arrives on. Partnerships and LLCs report on Schedule K-1 instead. Your brother-in-law's deals are almost certainly LPs or LLCs, which is why he sees K-1s. A vehicle that has elected REIT status for tax purposes sends the 1099, whether or not its shares trade on an exchange.

The part that trips people up is what's inside the 1099-DIV. The boxes split your distribution into ordinary dividends, capital gain, and return of capital. Return of capital isn't taxed in the year you get it, and it lowers your cost basis in the shares, so more gain shows up whenever you redeem. Keep every year's 1099 in one folder, because reconstructing basis five years later from statements is miserable work.

On the IRA: holding it through a custodian means distributions land inside the account and you generally don't get a 1099-DIV for them, but the custodian charges its own fees, often an annual account fee plus a per-asset or per-transaction fee for holding something that isn't a listed security. Those are set by the custodian, so ask for their fee schedule in writing before you fund anything.

One more thing worth confirming with a CPA before you sign: which entity is actually issuing the shares. Some private programs are structured as an LLC that owns REIT subsidiaries, and then you do get a K-1.

The 1099-DIV usually shows up fine, but watch for a corrected one. Sponsors finalize the return-of-capital split after their own year-end work, and a revised form in March after you've already filed is the version people complain about. I keep a small spreadsheet per position with shares, dollars in, and the return-of-capital number from each year's box 3, because nobody else is tracking that basis for you.

The K-1 your brother-in-law gets is from a partnership. A REIT is a corporation for tax purposes. Different form, different vehicle.

Careful with "REIT means 1099" as a flat rule though. I've been reading offering documents from three private non-traded programs and one of them is an LLC that files as a partnership, with the REIT election sitting a level down in a subsidiary. That one sends K-1s and it says so on about page four of the summary. The cover page tells you the entity type, so read that before you read anything about yield.

windlass has the right test. The form follows the entity's tax election, not the marketing label, and "REIT" gets used loosely for anything holding real estate. Check the tax section of the prospectus or PPM for the phrase electing to be taxed as a real estate investment trust.

Assuming it is a REIT, three things follow from the corporate treatment. Ordinary REIT dividends have generally qualified for a deduction on pass-through business income, and the rules there have changed before and carry sunset provisions, so confirm the current position with a CPA rather than with a prospectus written earlier. Second, the return-of-capital portion is basis reduction, not free money, and if basis reaches zero the excess turns into gain. Third, and this is the part that matters more than the annual filing fee: a REIT blocks the multi-state exposure. A partnership owning property in nine states can hand you a K-1 with nine state schedules and nine potential nonresident filings. That's where accountant bills actually jump, not from the existence of one extra form.

On the IRA question, the custodial route removes the annual 1099-DIV but adds the custodian's fee schedule and adds the illiquidity problem to an account you may eventually have to take required distributions from. If the repurchase plan is gated and you need cash out of that account, you're relying on the sponsor's redemption window to meet a deadline the sponsor doesn't care about. Read the repurchase plan before you decide the wrapper.

Also confirm whether the sponsor delivers tax forms by the statutory deadline or files extensions as a habit. Their track record is something you're entitled to ask the platform about.

If the deduction on ordinary REIT dividends is worth something in a taxable account, does putting the same position in an IRA throw that away? I'm trying to figure out which account this belongs in before I pick the fund, and it feels backwards to decide the wrapper first.

Run the numbers on marlow's case and it gets more interesting. Say a 5% distribution on 20,000 dollars is 1,000 a year, and 60% of it comes back as return of capital. Only 400 is taxable this year, and 600 shaves basis, so basis drops from 20,000 to 19,400. Do that five years and basis is 17,000 while you've been taxed on 2,000 of the 5,000 received. The rest surfaces as gain at redemption, at whatever rate applies then. So it's deferral with a rate bet attached. What I can't figure out is whether the 60% share holds up as the portfolio seasons, because depreciation on newly acquired buildings is front-loaded and a fund that stops buying should see that percentage fall.