How the IRS Decides Which Dividends Count as Qualified

The IRS has specific rules for which dividends get the lower tax rate

A may have access to dividend is one that meets IRS holding period and source requirements, which means it gets taxed at the long-term capital gains rate instead of your ordinary income rate. That rate is 0%, 15%, or 20% depending on your total income — significantly lower than ordinary dividend rates for most people. The IRS does not automatically know which of your dividends are may have access to; you have to identify them when you file your tax return.

The two main requirements are straightforward: you must have owned the stock for a minimum number of days, and the dividend must come from a U.S. corporation or a foreign corporation that meets specific conditions. If either requirement fails, the dividend is taxed as ordinary income.

Key Takeaways

You must own the stock for at least 60 days during a 121-day window around the dividend payment date, or the dividend is taxed as ordinary income.
Dividends from U.S. corporations almost always may have access to; dividends from foreign corporations may have access to only if the country has a tax treaty with the U.S. or the corporation is traded on a U.S. exchange.
Your brokerage statement may label may have access to dividends for you, but you should verify the holding period yourself because the label is not always correct.
Preferred stock dividends and real estate investment trust (REIT) dividends have different rules and are usually taxed as ordinary income.
If you sold the stock before the dividend was paid, or sold it too soon after, the dividend does not may have access to even if you owned it when the dividend was declared.

The holding period requirement: 60 days in a 121-day window

You must own the stock for at least 60 days during a specific 121-day period centered on the dividend payment date. The window starts 60 days before the ex-dividend date (the date you must own the stock to receive the dividend) and ends 60 days after it. If you owned the stock for fewer than 60 days during that window, the dividend is ordinary income.

The holding period clock stops if you sell the stock, enter into a short sale of the same or substantially identical stock, or buy a put option on it. These actions are treated as if you no longer own the stock for purposes of the holding period, even if you still hold the shares legally. If you use any of these strategies to hedge your position, you lose the may have access to dividend treatment.

The date you buy and the date you sell both count toward the holding period. If you bought on January 1 and sold on March 1, that is 60 days of ownership. The ex-dividend date is the key marker — the IRS publishes this date for every dividend, and your brokerage will show it on your statement.

U.S. corporations versus foreign corporations

Dividends from U.S. corporations are may have access to dividends by default, as long as you meet the holding period requirement. A U.S. corporation is one incorporated in any U.S. state or territory. You do not need to verify anything beyond that.

Dividends from foreign corporations may have access to only if one of two conditions is met. First, the country where the corporation is incorporated must have an income tax treaty with the United States that includes an exchange-of-information provision. Second, the corporation must be traded on a U.S. securities exchange (such as the NYSE or NASDAQ) and must meet certain other conditions. If neither condition is true, the dividend is ordinary income regardless of how long you held the stock.

Your brokerage statement will usually indicate the country of incorporation. If you are unsure, the company's annual report or SEC filings will state it. The IRS publishes a list of countries with may have access to tax treaties on its website.

What does not may have access to: REITs, preferred stock, and special cases

Dividends from real estate investment trusts (REITs) are taxed as ordinary income, not may have access to dividends, even if you meet the holding period requirement. This is a blanket rule — there are no exceptions. The same applies to dividends from most master limited partnerships (MLPs) and certain other pass-through entities.

Preferred stock dividends are ordinary income unless the preferred stock is traded on an established securities market and meets additional IRS requirements. Most preferred stock does not meet these conditions, so assume preferred dividends are ordinary income unless you have documentation otherwise.

Dividends paid by mutual funds and exchange-traded funds (ETFs) are passed through to you with their original character — meaning a mutual fund can distribute may have access to dividends to you if the fund itself received may have access to dividends from its holdings. However, the fund must hold the underlying stocks long enough to meet the holding period requirement, and you must hold the fund shares long enough as well. Your fund statement will show how much of your dividend distribution is may have access to.

How to verify may have access to status on your tax return

Your brokerage will send you a Form 1099-DIV in January showing the total dividends you received and how much is may have access to. Box 1b shows may have access to dividends; Box 1a shows ordinary dividends. You report may have access to dividends on Schedule D (Capital Gains and Losses) and then transfer them to your Form 1040.

The brokerage's classification is not always correct. You should spot-check it against your own records, especially if you sold stock during the year or if you received dividends from foreign corporations. If the brokerage made an error, you can correct it on your return — you are not required to use the 1099-DIV classification if you have evidence it is wrong.

Keep records of the purchase date, sale date, and ex-dividend date for each dividend. Your brokerage statement will have all of this information. If you are audited, the IRS will ask for these dates to verify that you met the holding period requirement.

What happens if you do not meet the holding period

If you fail the holding period test, the dividend is taxed as ordinary income at your marginal tax rate. For someone in the 37% federal tax bracket, the difference between the 20% may have access to rate and 37% ordinary rate is substantial. This is why some investors time their stock sales carefully around dividend dates.

If you bought a stock specifically to capture a dividend and then sold it shortly after, you may have triggered a wash sale or lost the may have access to dividend treatment. The IRS looks at patterns of buying and selling around ex-dividend dates, especially if you are doing this repeatedly. While there is no rule against it, aggressive timing can attract audit attention.

Frequently Asked Questions

If my brokerage says a dividend is may have access to, do I have to report it that way?

No. You can report it differently if you have evidence the brokerage made an error. However, if you report it as ordinary income when the brokerage reported it as may have access to, keep documentation of why you disagreed. The IRS may ask you to explain the difference.

Does a stock split or dividend reinvestment affect the holding period?

A stock split does not reset the holding period — you are still treated as owning the original shares. Dividend reinvestment (buying new shares with dividend proceeds) creates a separate holding period for those new shares. Each purchase has its own 60-day window.

What if I inherited stock and then received a dividend?

You do not meet the holding period requirement because you did not own the stock before you inherited it. The dividend is ordinary income. However, if you inherited the stock and held it for 60 days after inheriting it before the ex-dividend date, you would meet the requirement.

Can I lose may have access to status if I sell the stock after the ex-dividend date but before the payment date?

Yes. The holding period is measured around the ex-dividend date, not the payment date. If you sold the stock before the ex-dividend date, you do not receive the dividend at all. If you sold it after the ex-dividend date but did not own it for 60 days in the 121-day window, the dividend is ordinary income.

Are dividends from Canadian or UK stocks may have access to?

Yes, if the stocks are traded on a U.S. exchange or if the country has a may have access to tax treaty with the U.S. Both Canada and the UK have such treaties. However, you still must meet the 60-day holding period requirement. Check your brokerage statement or the IRS treaty list to confirm the country qualifies.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.