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Qualified dividend holding period

To tax a US dividend at long-term rates the share must be held more than 60 days in the 121-day window around the ex-dividend date, with hedged days excluded.

Qualified dividends are taxed at the preferential long-term-capital-gain rates instead of ordinary rates, but only if the issuer qualifies and the holder meets the period test. For most common stock the test is more than 60 days during the 121-day period beginning 60 days before the ex-dividend date; preferred stock dividends attributable to long periods use 90 days in a 181-day window.

Days on which risk of loss was diminished do not count. Writing a deep in-the-money covered call, holding a matching short position, or buying a put can therefore disqualify an otherwise fine dividend.

Your broker applies the test and reports the qualified portion on form-1099-b and the dividend statement, but the calculation depends on data your broker may not have if you hedged elsewhere.

General information for the United States, not tax advice. Rules change and depend on your circumstances; confirm with a professional.

Related: long-term-capital-gain, dividend, holding-period, covered-call, straddle-rules

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Payoff of a long call at expiryA flat loss equal to the premium below the strike, turning upward at 45 degrees above it.Profit / loss per share08595115125Strike 105Max loss 3 — the premium paidBreakeven 108Profit keeps growingUnderlying price at expiry
Buying a call: payoff at expiry. A 105-strike call bought for 3 loses that whole 3 if the price finishes at or below 105, breaks even at 108, then gains a dollar for every dollar higher. The loss is capped at the premium; the upside is not capped.

Educational only, not advice. Spotted an error? Post in Site Feedback.