What Are Qualified Dividends? - Stash Learn

Stash Learn

Feb 20, 2018

What Are Qualified Dividends?

By Lindsay Goldwert
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A dividend is a distribution from a company’s profits to individual shareholders. And there are two kinds of dividends–qualified and unqualified.

A qualified dividend comes from a company with a standard corporate structure, and it’s subject to capital gains taxes. Numerous public companies pay dividends, but funds called ETFs also pay them.

A dividend is considered “qualified” only if the stock or is held for a certain minimum amount of time (discussed below). A dividend is also only considered qualified if the investor did not use derivatives or short strategies to obtain it.

You can see if your dividends are qualified by looking at line 1b on your 1099-DIV tax form. The 1099-DIV is a tax form provided by your investment company.  In most cases, for the tax year in question, if you didn’t buy or sell stocks, exchange-traded funds (ETFs) or other applicable securities that you previously owned, you will likely have qualified dividends reported on your 1099-DIV form.

Qualified dividend rules for stocks and ETFs are:

  • You must have held the dividend-paying stock or ETF shares for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
  • For certain preferred stock, the security must be held for 91 days out of the 181-day period beginning 90 days before the ex-dividend date.
  • If investors hold their stock or stock shares for less time, they will subject to higher ordinary income tax rates.

Some dividends are not considered qualified, regardless of how long you hold them. These are called “unqualified” investments, and they include dividends from REITs* (real estate investment trusts) and REIT ETFs. The main reason that these investments do not distribute qualified dividends is that when you invest in REITs or REIT ETFs you are not buying fractions of companies or corporations but rather fractions of real estate property through investment trusts. These trusts do not pay corporate taxes, as all they do is manage the real estate property you are invested in, including distributing the rental income obtained from the leasing of these properties. So the dividend you receive from them is considered “rental income,” which is taxed at your personal income tax rate.

Looking for dividends? Consider Stash’s investments with a history of dividend payments to shareholders. You can find more information about the investments Stash offers here, and you can learn more about how Stash Invest works here.

In fact, Stash Learn is also giving new investors a special $5 sign-up credit to get started by just signing up here.

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Written by

Lindsay Goldwert

Lindsay Goldwert is an author and freelance personal finance writer, as well as the host of Spent podcast


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