How to Find Dividends that Qualify for the JGTRRA Tax Breaks

By Lawrence Carrel

All dividends aren’t created equal. Some qualify for the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) tax breaks, and some don’t. Almost all dividends paid by U.S. corporations qualify for the lower tax rate. Notable exceptions included REITs (real estate investment trusts) and master limited partnerships (MLP).

If the dividends qualify for the lower tax rate, the investor needs to meet the holding period requirements. Dividends paid by foreign corporations may qualify if the corporation’s stock or American Depository Receipts (ADRs) are traded on well-established U.S. securities markets or the corporation is eligible under a tax treaty with the United States.

Determining which stocks don’t qualify is a little easier than determining which stocks do qualify. Any item in the following list can disqualify a dividend from preferred tax treatment under the JGTRRA:

  • Dividends from preferred stock that’s treated more as an interest-bearing debt instrument than a true dividend-paying stock.

  • Dividends paid into tax-deferred retirement accounts, including IRAs, 401(k) plans, and deferred annuities. Tax is levied as ordinary income when you withdraw money.

  • Dividends from money market accounts.

  • Dividends from insurance policies.

  • Dividends from mutual funds attributable to interest and short-term capital gains.

  • Majority of dividends from S-Corporations.

  • Dividends paid to investors named as nominees.

  • Dividends paid by tax-exempt organizations, including some mutual savings banks and savings institutions such as credit unions, mutual insurance companies, farmers’ cooperatives, nonprofit voluntary employee benefit associations (VEBAs), and building and loan associations.

  • Stocks, including MLPs and REITs, that have built-in tax preferences.