When Does the Holding Period Begin for Stock Dividends?
Explore the distinctions between qualified and non-qualified stock dividends and discover when the holding period for qualified dividends officially starts.
J.B. Maverick brings over 17 years of expertise as a trader, commodity futures broker, and stock market analyst, alongside more than a decade of experience as a financial writer and editor.
The holding period for a stock dividend generally starts the day following the purchase of the stock. Grasping this timeline is essential for correctly applying qualified dividend tax rules.
How to Calculate the Holding Period
Investors determine the holding period by counting each day beginning the day after the asset is acquired and ending on the day it is sold. This initial day serves as a reference point for subsequent months, helping to confirm if the sale date falls within or outside the holding period.
Assets held for more than one year are typically classified as long-term capital gains or losses, while those held for less than a year are short-term. This distinction matters because long-term and short-term gains are taxed differently.
Understanding Qualified Dividends
To qualify as a qualified dividend, the stock must be held for a minimum period. For common stocks, investors must hold shares for over 60 days within a 121-day window that starts 60 days before the ex-dividend date. Preferred stocks require a holding period of at least 90 days within a 181-day timeframe beginning 90 days before the ex-dividend date.
Qualified dividends benefit from lower capital gains tax rates of 0%, 15%, or 20%, which are more favorable than the standard income tax rates applied to unqualified dividends.
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