Investors should keep in mind that while monthly distributions from bond ETFs are often called «dividends,» interest from the underlying bond holdings aren't
considered qualified dividends, and are taxed as ordinary income.
Not exact matches
Equity Income Funds typically distribute most of their income in the form of
Qualified Dividends, which for many taxpayers are taxed relatively lightly, allowing most Equity Income Funds and ETFs to be
considered High Tax Efficiency investments when compared with other investment options that generate taxable income.
And
dividends from stock funds (including preferred stocks) are typically
considered «
qualified income;» although you'll owe taxes, they may be at the lower capital gains rate.
Consider this hypothetical situation in which you have
dividends reported on Form 1099 - DIV as
qualified from shares in XYZ fund.
To determine whether your
dividend is
considered qualified or not, you must ensure that you have held the investment for at least 60 days, the
dividend comes from a
qualified company, and that you did not receive a «non-
dividend» distribution — such as a capital gains distribution.
For the
dividend to be
considered as
qualified divident rather than ordinary
dividend, therefore subject to the favoriable tax rate, the
dividends must be paid by a U.S. corporation or a
qualified foreign corporation and the mutual fund that holds the
dividend - paying stock must have held the equity for more than 60 days during the 121 - day period that begins 60 days before the ex-
dividend date (the first date following the declaration of a
dividend on which the buyer of a stock will not receive the next
dividend payment.
Qualified dividends are always
considered long - term capital gains.
Qualified dividends are taxed at the long - term capital gains rate, which is
considered more favorable than the tax rate for ordinary
dividends.
Long - term capital gains and
qualified dividends are not
considered ordinary income and are taxed at 15 percent, and for low income taxpayers, the rate can be 0 percent.
To be
considered as «
qualified,»
dividends must be held for a minimum of 60 days during a 120 - day period which begins 60 days previous to the ex-dividend date.