Understanding the 20% QBI Deduction for Mortgage REIT Investors — and What May Be Changing

Recent tax reform proposals moving through Congress include updates that could significantly benefit investors in mortgage REITs, particularly those investing with non-retirement (taxable) funds. As these changes continue to develop, now is a great time to revisit how the Qualified Business Income (QBI) deduction works—and what may be coming next.

What Is the QBI Deduction?

The QBI deduction, introduced as part of the 2017 Tax Cuts and Jobs Act, allows eligible investors to deduct up to 20% of qualified business income from certain types of investments, including income earned through a Mortgage Real Estate Investment Trust (REIT).

If you invest in a mortgage REIT with non-retirement funds (meaning outside of an IRA or 401(k)), this deduction may apply to the income you receive—resulting in lower taxable income and greater after-tax returns.

The Current Status: Scheduled to Expire

The 20% QBI deduction was originally set to expire in 2025, and until now, it’s been unclear whether Congress would allow it to sunset or extend it. For mortgage REIT investors, the potential loss of this deduction has raised important planning questions.

What’s Changing in the New Tax Proposal?

According to a recent article in The Wall Street Journal, the latest tax reform proposal includes several major changes that could positively affect REIT investors:

• ✅ Extension of the QBI deduction: The 20% deduction is likely to be extended beyond 2025.
• ✅ Permanent status: Lawmakers are considering making the deduction permanent, rather than temporary.
• ✅ Increase from 20% to 23%: The deduction could be raised to 23%, increasing the tax benefit for eligible investors.
• ✅ Higher income cap for other pass-throughs: While mortgage REIT income is not subject to the same income caps, other pass-through entities (like LLCs or partnerships) would see a higher income threshold, indexed to inflation.

Why This Matters for Mortgage REIT Investors

One of the unique advantages of investing through a mortgage REIT structure is that this deduction does not phase out at higher income levels. That means regardless of how much income you earn, you can still qualify for the deduction on REIT-generated income.

If the current proposal becomes law, this could result in even greater tax savings, especially for those using taxable funds to invest.

What Should You Do Now?

If you’re currently investing in a mortgage REIT or considering doing so, it may be helpful to:

• Review how the QBI deduction applies to your current investment
• Speak with your tax advisor to understand the potential impact of a 23% deduction
• Contact your fund manager or investor relations team to learn more about how your income is reported and structured

Final Thoughts

While the tax proposal is still in progress, the signs are positive: an extension, a potential increase, and greater certainty for long-term investors. For those already participating in a mortgage REIT, this could enhance after-tax returns and add to the appeal of non-retirement investing strategies.

As always, staying informed is key—and we’ll continue to share updates as more details emerge.

About TaliMar Financial and TaliMar Income Fund

TaliMar Income Fund I offers investors the ability to participate in the rapidly growing demand for private real estate debt. The fund is comprised of a diversified portfolio of short-term loans secured primarily on residential single family and multi-family properties throughout California. The fund manager, TaliMar Financial, was established in 2008 and has successfully funded over $500 million in loans.  Investors in the mortgage fund include high net worth investors, family offices, and private equity funds who are seeking consistent monthly income, the security of real estate, and the tax benefits of a mortgage fund structured as a real estate investor trust. 

Disclosure: This advertisement is for informational purposes only and does not constitute an offer to sell nor a solicitation of an offer to buy any security. Such offers can only be made by the Private Placement Memorandum (“PPM”) and related subscription documents. Any investment in TaliMar Income Fund I involves significant risk. You should not enter into any transactions unless you fully understand all such risks and have independently determined that such transactions are appropriate for you. Business Purpose Loans arranged through TaliMar Income Fund I, LLC (DFPI CFL License No. 60DBO-137778).