Qualified Vs. Nonqualified Dividends

Qualified Vs. Nonqualified Dividends
A dividend's status has a major effect on your taxes and return on investment.

Basic Distinction

Most dividends paid to individual and corporate investors through traditional stock accounts are qualified. Dividends paid out by U.S. companies with normal business structures, as well as qualified foreign companies, are qualified. The NASDAQ website notes real estate investment trusts, employee stock option dividends and master limited partnerships as examples of irregular entities that pay unqualified dividends.

Holding Period Requirement

Another factor that impacts the qualified status of a dividend is the holding period. You must hold shares of common stock for 60 of the 120 days beginning 60 days before the dividend execution date, according to NASDAQ. Buying a stock prior to the dividend execution date to take advantage of the payout leads to a higher, unqualified, tax rate.