Mutual Fund Holding Period Requirement

Is there a holding period requirement for qualified dividends from mutual fund shares?

Yes.

Even though dividends are reported to mutual fund and unit investment trust shareholders as qualified dividends on Form 1099-DIV, they are not qualified dividends for tax purposes unless the mutual fund or unit trust shareholder has met the more than 60-day holding period requirement for the fund or trust shares owned.

In other words, in order for a fund shareholder to receive a qualified dividend it must be a qualified dividend both to the fund and the shareholder.

Both the fund and the shareholder must meet the more than 60-day holding period requirement.

The following example is from the Form 1040 Instructions:

You bought 10,000 shares of ABC Mutual Fund on July 1.

ABC Mutual Fund paid a cash dividend of 10 cents a share.

The ex-dividend date was July 9.

The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share.

Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of$1,000 and qualified dividends of $200.

However, you sold the 10,000 shares on August 4.

You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days.