Question about qualified dividends from ETF

[jim584672]

So this is my first time dealing with qualified dividends. I have a ETF that holds preferred stocks, it is 66% qualified dividends.

Does the holding period apply to both the ETF itself and the beneficial holder?

Or does the holder "inherit" the holding period from the fund, like a long term capital gain distribution, where even if it is held for a day, the distribution is still considered a LTCG?

Thanks.

 

[pb4uski]

The short or long term nature of capital gain distributions do not have anything to do with how long you have held the fund but rather how long the fund held individual investments that it held and sold.

Whether dividends of a fund are qualified or not depends on the nature of the underlying investments that generated the income that is being dividended.

 

[jim584672]

So if I buy a ETF like VTI that last year had 95% qualified dividends, the day before ex-dividend date, then sold it on ex-dividend date, for a one day hold, would the dividend still be considered qualified since the fund held the underlying equities for the required holding period to make them qualified?

My personal holding period is not considered when it comes to the holding period concerning qualified dividends?

I have Googled this and get conflicting answers.

 

[LOL!]

There really are 2 tests to pass. The first is whether the ETF calls the dividend qualified. The second is whether you personally with those shares met the required holding period for those qualified dividends to remain qualified for you.

So in the buy and hold for 3 days, NO, the VTI qualified dividend would not be qualified to you. Your personal holding period is important. And that is true of mutual funds as well.

Your broker may send you a corrected 1099-DIV after a couple months into the new year if you ended up buying on the last day of the year with the amount of qualified dividends changed for you.

Maybe read IRS publication 550: http://www.irs.gov/pub/irs-pdf/p550.pdf ?

Holding period. You must have held the stock for more than 60 days during the 121-day pe- riod that begins 60 days before the ex-dividend date. The ex-dividend date is the first date fol- lowing the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. See the examples, below.

In Pub 550, there is Example 3 which clearly shows that both tests must be met for a mutual fund. An ETF is a fund.

 

[clifp]

That is an easy rule to get wrong. I was aware of it in the back of my mind, but I've always just relied on my brokerage statements. They say I had so many $ in qualified dividends, and I've never gone through and broken down to see which were for stocks I bought recently My average holding period for a stock is around 5-6 year and it would only affect 1 quarter at the most.

Anybody ever gotten flagged for this, do brokerage get it right when the report qualified dividends.

 

[jim584672]

Vanguard confirms a personal and fund holding period...

Box 1b (Qualified dividends)
Box 1b shows the portion of the amount in Box
1a (Total ordinary dividends) that is QDI-eligible for
the reduced 20%, 15%, or 0% tax rate. To claim
the reduced tax rate for QDI reported in Box 1b,
you must have held your fund shares for at least
61 days during the 121-day period beginning 60
days prior to the ex-dividend date. (Also known as
the reinvest date, the ex-dividend date is when
the fund’s net asset value is adjusted to account
for distributions.) Your “personal QDI” is the QDI
reported to you in Box 1b, reduced, if necessary,
by dividends for which you didn’t meet the holding-
period requirement. Enter the amount of qualified
dividends on Line 9b of your Form 1040 or 1040A.

Vanguard doesn’t mail personal QDI statements to
shareholders. For help in determining your personal
QDI, visit the Tax center on vanguard.com to use
the “Qualified income dividend calculator,” which
can calculate qualified dividend income generated
by your taxable Vanguard mutual fund shares.