Today TaxMama hears from Gene from Goodyear, Arizona, who asks, “I’ve read it and read it and read it again but I still don’t get it! I know that stock dividends are now taxed at a lower rate if you meet the requirements. The rule states “the stock on which the dividend is paid must be held for more than 60 days during the 120 day period beginning 60 days before the ex-div. date”. I understand what “ex-div. date” means but could you give me an example of the 60/120/60 day stuff? Thanks for helping this retired and confused reader.”
Dear Gene,
It’s obvious why your confused – the qualifying dividend law is written in such a way that any normal person is certain not to understand it. Heck, if you’re ever audited, I doubt that any auditor could figure this out either – or would be so bold as to open this can of worms.
I remember understanding it – sort of – when I wrote this article for MarketWatch, back when the law was written 2 years ago: IRS eases dividend rules – Preemptive move should help long-term stock holders
https://www.marketwatch.com/News/Story/Story.aspx?column=TaxWatch&siteid=mktw&guid=%7BAD74B73C%2D3064%2D4491%2D9401%2D490114D22277%7D
But, since you ask…OK, I’ll give it a shot. Perhaps I can figure this out well enough to explain it.
I’ve figured this out. Hah!
Hold on to the stock for 60 days after the ex-dividend date* before you sell it and you’re in good shape.
NEVER buy a stock on the day before the ex-dividend date because then you’ll never be able to hold it for sixty days after the ex-dividend date and still have the stock qualify to be within the designated 120-day window.
Or if you want to sell a stock shortly after it declares its dividend, be sure to buy it more than 60 days before the ex-dividend date.
That’s it in a nutshell.
Remember, you’ll find answers to questions about dividends and all kinds of tax issues, free. Where? Where else? At TaxMama.com
- Definition – ex-dividend date – if you buy a stock on the ex-dividend date, you won’t get the upcoming dividend. For more information – read this https://www.sec.gov/answers/dividen.htm
- Ask TaxMama :: Where taxes are fun and answers are free
- MarketWatch.com :: IRS eases dividend rules – Preemptive move should help long-term stock holders
- Definition :: Ex-Dividend Date
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