The Dividends Holding-Period Requirement for the JGTRRA-Preferred Tax Rate
Even if the dividends come from a qualified company, another factor that can disqualify dividends from the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA)-preferred taxed rate is a failure on your part to hold the shares long enough.
You can’t just buy a dividend stock a day before the ex-dividend date (point after which the dividend is removed from the share price), sell your shares the day after you collect the next dividend, and expect to receive preferential tax treatment under the JGTRRA. You have to hold your shares for a reasonable amount of time. What’s reasonable? That depends on whether you’re holding common or preferred stock:
Common stock: You must hold your shares for more than 60 days during the 121-day period beginning 60 days prior to the ex-dividend date. That is, you have to buy your shares at least one day (up to 60 days) before the ex-dividend date and then hold them for at least 61 days.
Preferred stock: You must hold your shares for more than 90 days during the 181-day period beginning 90 days prior to the ex-dividend date. That is, you have to buy your shares at least one day (up to 90 days) before the ex-dividend date and then hold them for at least 91 days.
The day you purchase your shares doesn’t count, but the day you sell your shares does.
When the company issues you a federal tax form 1099-DIV, it lists the monetary value of the dividends that potentially qualify for the lower tax rate. Whether they do qualify depends on how long you held the shares. It’s up to you to determine whether they qualify or not. Check the ex-dividend date and the date you bought and sold the shares to determine whether your dividends qualify for the lower tax rate. Better yet, check the ex-dividend date and your purchase date prior to selling shares and make sure you’ve met the holding requirement before you sell.