I have a client that owns position in a dividend paying real estate investment trust (REIT). Dividends were recently declared for shareholders as of record on December 20th, 2012. However, the payable date is after year end or on January 4th, 2013. Since taxpayers report on a cash basis, would the dividend be reported on their 2012 or 2013 tax return?

ANSWER

The BIDaWIZ Team's Answer:

The short answer is that you would report dividends in the calendar year of the record date for REITs or 2012 in this case. Specifically, there's a provision in the Internal Revenue Code Section 857(b)(9) which discusses how REIT dividends paid in January of the following year can be reported in the preceding calendar year as long as the record date occurred in October, November or December of the preceding year. This provision supersedes the conventional cash receipt treatment. The taxpayer should also receive a Form 1099-DIV that reflects the dividend income in the 2012 tax year.