Holding Period Requirement

Is there a holding period requirement for Qualified Dividends?

Yes. Even though a dividend is reported as a qualified dividend on Form 1099-DIV in order for it to be taxed at long-term capital gain rates the shareholder must meet the holding period requirements.

Shares must be held for more than 60 days during the 121 day period beginning 60 days before the ex-dividend date.

For preferred stock the requirements are 90 and 181 days. When counting the number of days:

    * Based on calendar days

    * Do not include the day acquired (the day after trade date is day 1)

    * Include the date sold.

The holding period requirement can be satisfied if the stock is acquired the day before the ex-dividend date and then held for 60 days.

Hedging Transactions Any days during which the risk of loss on the stock is reduced by a hedging transaction will not count towards meeting the more than 60-day holding period requirement. Common hedging transactions that will affect the holding period requirement are:

    * Buy a put,

    * Sell a call, other than an out-of-the-money qualified covered call, and

    * Short sale.

If the holding period requirement is not met, dividends are taxed at the shareholder’s marginal tax rate.