I am trying to understand how reit taxation works

[DJS · Accepted solution]

You can find a good discussion of REIT taxation and the implications for holder of REIT units here: https://www.investopedia.com/articles/pf/08/reit-tax.asp

Also here: https://www.simplysafedividends.com/reit-taxes-real-estate-investment-trust/

[mbwig]

Yes these articles were useful. Brian the author of the simply safe article refers to IRS form 8937. I believe the 8937 is supposed to detail the impact of each year's portion of the dividend that represents a return of capital. Is the 8937 supposed to be issued each year or only when the REIT is dissolved, sold goes public or otherwise discontinued?

[DJS]

This is what the form actually says: When To File
Form 8937 must be filed with the IRS on or before the 45th
day following the organizational action or, if earlier, January
15 of the year following the calendar year of the
organizational action. You may file the return before the
organizational action if the quantitative effect on basis is
determinable. For purposes of determining this deadline, a
redemption occurs on the last day a holder may redeem a
security.

For example: File Form 8937 when an organizational action affects the
basis of holders of a security or holders of a class of the
security. For example, you must file Form 8937 if you make a
nontaxable cash distribution to shareholders

To understand what "organization action refers to look at the instructions for the form. <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i8937.pdf">https://www.irs.gov/pub/irs-pdf/i8937.pdf</a>