Dividend Distributions: Qualified and Non-Qualified

What this video covers

• Why qualified dividends get the preferential 0%, 15%, or 20% rate while non-qualified dividends are taxed at ordinary income rates up to 37%
• The three requirements a dividend must meet to be qualified: U.S. or qualified foreign corporation, not on the exclusion list, and holding period satisfied
• The common stock holding period test: strictly more than 60 days inside a 121-day window centered on the ex-dividend date (day 60 fails, day 61 passes)
• The preferred stock exception: more than 90 days inside a 181-day window centered on the ex-dividend date
• The "usual suspects" that are always non-qualified: real estate investment trust (REIT) dividends, money market fund dividends, and dividends on stock held short
• Why a return of capital is not a dividend, is not immediately taxable, and reduces the investor's cost basis dollar for dollar
• How a fully depleted cost basis converts further return-of-capital distributions into taxable capital gains, and how basis reduction changes the gain on a later sale