Selling REITs in the US Market: What You Need to Know Before Making Your Move

Deciding to sell your REIT (real estate investment trust) shares requires more than just a quick phone call to your broker. Understanding the underlying mechanics—especially the differences between publicly listed and privately held REITs—can significantly impact your returns and tax situation. Let’s break down what you should consider before executing a sale.

Tax Consequences Come First

Before you think about hitting the sell button, it’s crucial to understand what Uncle Sam expects from you. The tax treatment of your REIT sale depends on two main factors: how long you’ve owned the shares and whether you’re realizing a gain or loss.

Capital Gains Treatment

If you’re selling at a profit, you’ll face capital gains tax. Here’s where timing matters. Shares held for less than 12 months trigger short-term capital gains taxes, which get taxed at your regular income rate—potentially hefty depending on your bracket. Hold them for over a year, and you qualify for the more favorable long-term capital gains rate.

Consider Sarah’s situation: she invested $50,000 in REIT shares and sold them five years later for $80,000. Her $30,000 profit qualified for long-term capital gains treatment, resulting in significant tax savings compared to if she’d sold within the first year.

Dividend Tax Complications

Here’s where REITs get tricky. Unlike typical dividend-paying stocks, REIT distributions are taxed as ordinary income rather than qualified dividends. Since REITs must distribute at least 90% of their taxable income to shareholders, this can create substantial tax liability during your holding period. However, current tax law allows for a 20% pass-through deduction on certain REIT dividends through 2025, which can offset some of this burden.

The Liquidity Reality: Publicly Traded vs. Non-Traded REITs

Not all REIT shares are created equal when it comes to selling them. Your exit strategy depends entirely on which type of REIT you own.

Publicly Traded REITs: The Straightforward Route

If your REIT is listed on a major US exchange, selling is relatively painless. You simply place a sell order through your brokerage account, similar to selling stocks. Market liquidity is typically robust, meaning you can offload your shares at current market prices without excessive delays. The catch? Market conditions fluctuate constantly, so the price you receive today might be different tomorrow.

Non-Traded REITs: The Complications

Non-traded REITs present a different animal entirely. These aren’t listed on public exchanges, which means buyer pools are limited and liquidity is scarce. Most investors face lock-up periods averaging five to seven years before they’re even allowed to sell. When that period finally expires, finding a buyer often means accepting a discount to fair value.

Some non-traded REITs offer redemption programs—essentially the ability to sell shares back to the fund itself—but these redemptions typically come at reduced prices. Additionally, early withdrawal penalties can slice 10-15% off the offering price, substantially eroding your returns.

The Selling Process: Step by Step

When you’re ready to execute the sale, the actual mechanics depend on your REIT type.

For publicly traded REITs, contact your brokerage or financial advisor and place a sell order at market value. Execution happens within standard trading hours, similar to stock sales. Your broker handles all settlement details.

For non-traded REITs, the process is more manual. You’ll need to contact your fund sponsor or advisor directly, confirm you’ve met any holding period requirements, review the specific redemption terms, and submit formal paperwork. Expect delays and potential fees.

Before pulling the trigger, review your REIT’s prospectus for any hidden fees, early redemption penalties, or other restrictions that could impact your net proceeds.

Why Get Professional Guidance

Selling a REIT involves multiple moving parts—tax planning, market timing, fee assessment, and portfolio rebalancing. A qualified financial advisor can help you:

• Determine the optimal timing for your sale based on tax considerations
• Identify whether selling makes sense for your overall portfolio strategy
• Navigate the specific requirements of your particular REIT
• Coordinate with your tax professional to minimize overall tax burden

Quick Takeaway

Selling REIT shares demands attention to detail. Publicly traded REITs offer straightforward exits with market-based pricing. Non-traded REITs require patience, lock-up period awareness, and realistic expectations about pricing. Factor in capital gains taxes, the ordinary income treatment of dividends, and any fees unique to your investment. The more informed you are upfront, the better your outcome will be.