Non-qualified dividends
This article contains details specific to United States (US) investors. It does not apply to non-US investors.A portion of your ordinary dividends may be non-qualified dividends because they can include items like these:
- Taxable interest. When a mutual fund receives taxable interest, the income gets paid out as a dividend. It's a dividend when it goes out of the mutual fund, but it wasn't a dividend when it came into the mutual fund, so it can't be a qualified dividend.
- Non-qualified dividends. A mutual fund or ETF may distribute dividends that are non-qualified. A fund must hold the security for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. If this requirement is not met, the dividends do not qualify for the long-term capital gains rate and are treated as ordinary income.[1][2][note 1]
- Short-term capital gain. When a mutual fund or ETF has a short-term capital gain, it pays this amount to the shareholders as an ordinary dividend.
- Time period to hold shares. To qualify for the long-term capital gains rate, you must own those shares for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date (the same requirement as a fund or stock). Otherwise, the dividend is non-qualified. This requirement applies even if the event is reported to you as a qualified dividend. You don't have to buy the shares 61 days before the dividend is paid, but the total amount of time you hold the shares (including time before and after the dividend) has to be at least 61 days.[1][note 1][note 2]
Almost all of the dividends distributed by equity REITS come in the form of non-qualified dividends. Non-qualified dividends are taxed at marginal income tax rates.
See also
Notes
- ↑ 1.0 1.1 Certain preferred stock must be held for 91 days out of the 181-day period, beginning 90 days before the ex-dividend date.
- ↑ Stock shares must be held unhedged for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date. "Unhedged" means that no puts, calls, or short sales were associated with the shares during the holding period.
References
- ↑ 1.0 1.1 "Qualified dividends". Fidelity. Retrieved June 24, 2022.
{{cite web}}: CS1 maint: url-status (link) - ↑ "Dividends on ETFs". Fidelity. Retrieved June 24, 2022.
{{cite web}}: CS1 maint: url-status (link)
