TLH -> Non-qualified Dividend

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KlangFool
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TLH -> Non-qualified Dividend

Post by KlangFool » Wed Oct 24, 2018 9:36 pm

Folks,

I need help in understanding this issue. So, if I sell a portion of the mutual fund that I held less than 61 days, the qualified dividend from that portion of mutual fund becomes non-qualified dividend.

A) Do Vanguard keep track of that and show the numbers in the tax form?

B) Why is this a big deal? The dividend is typically less than 2%. So, if I sell 10K of mutual fund and realized 2K of loss, I may charge $200 of qualified dividend to the non-qualified dividend.

Please educate me. I must have missed something in my understanding.

KlangFool

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MP123
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Re: TLH -> Non-qualified Dividend

Post by MP123 » Wed Oct 24, 2018 11:17 pm

Qualified dividends are taxed at lower rates (0%,15%,20%) than non-qualified which are taxed at your regular income tax rate.

If you hold a fund less than 61 days a dividend paid from the fund that would otherwise be qualified becomes non-qualified to you.

It isn't directly related to capital loses or gains from selling the fund unless I misunderstand your question.

Vanguard should keep track of it and report it on your 1099-div. It means a higher tax rate on the amount of the dividend.

livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Wed Oct 24, 2018 11:54 pm

1. No. I have never seen any broker including Vanguard keep track of one's personal holding period when it comes to dividends.

2. Generally not a big deal for quarterly dividends. See treatment in this thread:
viewtopic.php?t=179414
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JustinR
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Re: TLH -> Non-qualified Dividend

Post by JustinR » Thu Oct 25, 2018 1:45 am

Wait, so here's an example:

I already own 100 shares of VTSAX.
I buy 2 more shares on 9/1.
On 9/25 there's a dividend.
I sell those 2 shares on 10/20.
The portion of the dividend from those 2 shares are non-qualified?

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BolderBoy
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Re: TLH -> Non-qualified Dividend

Post by BolderBoy » Sat Oct 27, 2018 10:46 am

JustinR wrote:
Thu Oct 25, 2018 1:45 am
Wait, so here's an example:

I already own 100 shares of VTSAX.
I buy 2 more shares on 9/1.
On 9/25 there's a dividend.
I sell those 2 shares on 10/20.
The portion of the dividend from those 2 shares are non-qualified?
As I understand it, the required, absolute holding period is 61 days from a dividend, so it would seem that you are right in your scenario.

Here is my scenario: Dividend date 9/27. Sold 35sh VTSAX on Oct 1. Since I violated the 61 day rule, I'm presuming the dividend attributable to those 35sh will be non-qualified.

Can someone weigh in on this and confirm my suspicion and understanding of this qualified vs non-qualified issue? Thanks.
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livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Sat Oct 27, 2018 11:02 am

JustinR wrote:
Thu Oct 25, 2018 1:45 am
Wait, so here's an example:

I already own 100 shares of VTSAX.
I buy 2 more shares on 9/1.
On 9/25 there's a dividend.
I sell those 2 shares on 10/20.
The portion of the dividend from those 2 shares are non-qualified?
Yes, the dividend that those 2 shares paid are 100% non-qualified.
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livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Sat Oct 27, 2018 11:05 am

BolderBoy wrote:
Sat Oct 27, 2018 10:46 am
JustinR wrote:
Thu Oct 25, 2018 1:45 am
Wait, so here's an example:

I already own 100 shares of VTSAX.
I buy 2 more shares on 9/1.
On 9/25 there's a dividend.
I sell those 2 shares on 10/20.
The portion of the dividend from those 2 shares are non-qualified?
As I understand it, the required, absolute holding period is 61 days from a dividend, so it would seem that you are right in your scenario.

Here is my scenario: Dividend date 9/27. Sold 35sh VTSAX on Oct 1. Since I violated the 61 day rule, I'm presuming the dividend attributable to those 35sh will be non-qualified.

Can someone weigh in on this and confirm my suspicion and understanding of this qualified vs non-qualified issue? Thanks.
If you had owned the shares of VTSAX that paid the dividend for any 61 days that included 9/27, then the portion of the dividend that was qualified would remain personally qualified to you. Since you mentioned 9/25 and 9/27 in your two statements, I am confused, but ....

I can calculate 61 days from the day you sold, Oct 1. That would take you back to August 1, 2018. Any shares that you bought on Aug 1 and later that you sold on Oct 1 that received a dividend any time that you owned them since August 1 would not have the qualified dividend portion of the dividend remain qualified to you. That is, the dividend would be 100% non-qualified.
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retiringwhen
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Re: TLH -> Non-qualified Dividend

Post by retiringwhen » Sat Oct 27, 2018 11:22 am

livesoft wrote:
Wed Oct 24, 2018 11:54 pm
1. No. I have never seen any broker including Vanguard keep track of one's personal holding period when it comes to dividends.

2. Generally not a big deal for quarterly dividends. See treatment in this thread:
viewtopic.php?t=179414
Interesting, I assumed (i know, don't every assume) that the 1099 would track the 61 day rule. I have some dividends in September that will be non-qualified as well due to TLH timing. I'll have to look at the impact next year during tax season (it is more than 27 cents, but all that much).

So far, I have avoided wash sales with minimal effort using a combination of different Index funds in tax-deferred vs. taxable and turning off automatic dividend re-investment.

As mentioned many times, livesoft, your epic thread on wash-sales is top-notch education. Adding Physician on FIRE's recent blog post as a entry tutorial could be considered authoritative! https://www.physicianonfire.com/tax-los ... -vanguard/

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BolderBoy
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Re: TLH -> Non-qualified Dividend

Post by BolderBoy » Sat Oct 27, 2018 12:47 pm

livesoft wrote:
Sat Oct 27, 2018 11:05 am
BolderBoy wrote:
Sat Oct 27, 2018 10:46 am
Here is my scenario: Dividend date 9/27. Sold 35sh VTSAX on Oct 1. Since I violated the 61 day rule, I'm presuming the dividend attributable to those 35sh will be non-qualified.

Can someone weigh in on this and confirm my suspicion and understanding of this qualified vs non-qualified issue? Thanks.
If you had owned the shares of VTSAX that paid the dividend for any 61 days that included 9/27, then the portion of the dividend that was qualified would remain personally qualified to you. Since you mentioned 9/25 and 9/27 in your two statements, I am confused, but ....

I can calculate 61 days from the day you sold, Oct 1. That would take you back to August 1, 2018. Any shares that you bought on Aug 1 and later that you sold on Oct 1 that received a dividend any time that you owned them since August 1 would not have the qualified dividend portion of the dividend remain qualified to you. That is, the dividend would be 100% non-qualified.
Ah, then my understanding is not quite correct. From what you said, does one works backwards from the sold date for 61 days to see if it includes both an ex-dividend date and ownership of the shares for the whole 61 days, at the same time. If so, the dividends on those shares are qualified.

Have I got that right?

The dividends would be non-qualified if the shares were held less than the entire 61 day window that included an ex-dividend date or for less than the 61 day window in any event. Both or either of those requirements would have to come into play for a non-qualified dividend, is that right?

I'm trying to formulate an Excel spreadsheet snippet (in my head) that accounts for all the parameters and yields a result of "qualified" or "non-qualified".
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livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Sat Oct 27, 2018 12:53 pm

Here is a Vanguard brochure on 1099-DIV and discusses QDI and personal holding period which is also discussed in the IRS publication.

https://personal.vanguard.com/pdf/1099DIV_012018.pdf
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retiringwhen
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Re: TLH -> Non-qualified Dividend

Post by retiringwhen » Sat Oct 27, 2018 1:12 pm

livesoft wrote:
Sat Oct 27, 2018 12:53 pm
Here is a Vanguard brochure on 1099-DIV and discusses QDI and personal holding period which is also discussed in the IRS publication.

https://personal.vanguard.com/pdf/1099DIV_012018.pdf
From the Brochure:
vanguard wrote:Box 1b (Qualified dividends)

Box 1b shows the portion of the amount in Box 1a (Total ordinary
dividends) that’s eligible for the reduced qualified dividend income (QDI)
tax rate (20%, 15%, or 0%, depending on your modified adjusted gross
income and taxable income). To claim this reduced tax rate, you must
have held your fund shares for at least 61 days during the 121-day period
beginning 60 days before the ex-dividend date. The ex-dividend date (also
known as the “reinvest date”) is when the fund’s net asset value is
adjusted to account for a distribution. Your “personal QDI” is the QDI
reported to you in Box 1b, reduced (if necessary) by dividends for which
you didn’t meet the holding-period requirement.
Enter the amount of
qualified dividends on line 9b of your Form 1040 or 1040A. Qualified
dividends are also included in the total ordinary dividend amount required
on line 9a.
It took me three times reading that emphasized statement closely to realize they are telling me exactly what you said! I guess I am slow. Thanks again. One more little thing to track.

InvestVS
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Re: TLH -> Non-qualified Dividend

Post by InvestVS » Sat Oct 27, 2018 1:33 pm

Need small clarification -

Does dividend become non-qualified because of someone selling the ETF before keeping it for 61 days, no matter when is the dividend paid?

OR

Does dividend become non-qualified because of someone did not keep the ETF with them for 61 days before the dividend was paid?

For Example -
* Today is 27th Oct; I have a loss on ETF A and I want to TLH that with ETF B.
* ETF A and ETF B, both will pay the dividend in mid-December.
* If I sell ETF A and buy ETF B on Monday and keep ETF B with me more than 61 days, then the question is "will dividend paid in mid-December for ETF B will be qualified or non-qualified?

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BolderBoy
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Re: TLH -> Non-qualified Dividend

Post by BolderBoy » Sat Oct 27, 2018 2:15 pm

livesoft wrote:
Sat Oct 27, 2018 12:53 pm
Here is a Vanguard brochure on 1099-DIV and discusses QDI and personal holding period which is also discussed in the IRS publication.

https://personal.vanguard.com/pdf/1099DIV_012018.pdf
Splendid, thank you. I think I got it now. One takes the ex-dividend date and works backwards from there in applying the holding period requirements.

This has been very instructive.
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livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Sat Oct 27, 2018 2:58 pm

InvestVS wrote:
Sat Oct 27, 2018 1:33 pm
Need small clarification -

Does dividend become non-qualified because of someone selling the ETF before keeping it for 61 days, no matter when is the dividend paid?

OR

Does dividend become non-qualified because of someone did not keep the ETF with them for 61 days before the dividend was paid?

For Example -
* Today is 27th Oct; I have a loss on ETF A and I want to TLH that with ETF B.
* ETF A and ETF B, both will pay the dividend in mid-December.
* If I sell ETF A and buy ETF B on Monday and keep ETF B with me more than 61 days, then the question is "will dividend paid in mid-December for ETF B will be qualified or non-qualified?
If you keep the ETF B for at least 61 days in the window of 60 days BEFORE dividend and 60 days AFTER dividend (the day the dividend is paid counts as an extra day, hence 61 days), then the QDI remains a QDI. That could be 60 days before or 60 days after or 29 days before+ 31 days after or .... It's a WINDOW that you can slide around to match your personal holding period.

Here's the stupid thing: If the amounts purchased are not large, the actual difference to you in taxes could be less than $5, so you should know the tax difference and see if you are making a mountain out of a molehill.
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InvestVS
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Re: TLH -> Non-qualified Dividend

Post by InvestVS » Sat Oct 27, 2018 4:20 pm

livesoft wrote:
Sat Oct 27, 2018 2:58 pm
InvestVS wrote:
Sat Oct 27, 2018 1:33 pm
Need small clarification -

Does dividend become non-qualified because of someone selling the ETF before keeping it for 61 days, no matter when is the dividend paid?

OR

Does dividend become non-qualified because of someone did not keep the ETF with them for 61 days before the dividend was paid?

For Example -
* Today is 27th Oct; I have a loss on ETF A and I want to TLH that with ETF B.
* ETF A and ETF B, both will pay the dividend in mid-December.
* If I sell ETF A and buy ETF B on Monday and keep ETF B with me more than 61 days, then the question is "will dividend paid in mid-December for ETF B will be qualified or non-qualified?
If you keep the ETF B for at least 61 days in the window of 60 days BEFORE dividend and 60 days AFTER dividend (the day the dividend is paid counts as an extra day, hence 61 days), then the QDI remains a QDI. That could be 60 days before or 60 days after or 29 days before+ 31 days after or .... It's a WINDOW that you can slide around to match your personal holding period.

Here's the stupid thing: If the amounts purchased are not large, the actual difference to you in taxes could be less than $5, so you should know the tax difference and see if you are making a mountain out of a molehill.
Thanks!

Does this mean I need to hold ETF B for 61 + 61 days? Did you mean to say OR, rather than AND in your statement "60 days BEFORE dividend and 60 days AFTER dividend"?

I have $24.5K Short-term Loss which I am trying to harvest and the current value of that ETF is $92K. I do have a short-term realized gain of $22K also and long-term realized a gain of $21K. So you are right, I am making it bigger than it should be. If I offset my Short-term Loss with short-term and long-term realized gain, do I still need to worry about wash sale or new ETF's dividend in this case? I am thinking of buying VXUS as ETF B and VWO is ETF B, so not sure how much extra tax I will be paying on VXUS dividend paid in Dec based upon that value.

livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Sat Oct 27, 2018 4:39 pm

InvestVS wrote:
Sat Oct 27, 2018 4:20 pm
Does this mean I need to hold ETF B for 61 + 61 days? Did you mean to say OR, rather than AND in your statement "60 days BEFORE dividend and 60 days AFTER dividend"?
I wrote "in the window" which you missed. Now that you were told to pay attention to "in the window" is that helpful?
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InvestVS
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Re: TLH -> Non-qualified Dividend

Post by InvestVS » Sat Oct 27, 2018 4:47 pm

Now I got it, thanks!

Ndop
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Re: TLH -> Non-qualified Dividend

Post by Ndop » Sun Oct 28, 2018 1:00 am

livesoft wrote:
Sat Oct 27, 2018 11:05 am
Any shares that you bought on Aug 1 and later that you sold on Oct 1 that received a dividend any time that you owned them since August 1 would not have the qualified dividend portion of the dividend remain qualified to you. That is, the dividend would be 100% non-qualified.
If one buys on Aug 1 and sells on Oct 1, wouldn't the qualified portion of the dividend remain qualified, because ownership was 61 days?

livesoft
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Re: TLH -> Non-qualified Dividend

Post by livesoft » Sun Oct 28, 2018 5:16 am

^Thanks for counting the days. Yes.
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