Nonqualified Dividend

A nonqualified dividend is a type of dividend payment made by a Corporation to its Shareholder/">Shareholders that does not meet the criteria to be taxed at the lower long-term Capital-gains-tax/">Capital Gains Tax rate. Instead, nonQualified Dividends are taxed as Ordinary Income at the Shareholder/">Shareholder’s regular income tax rate.

NonQualified Dividends typically include:

• Dividends paid by certain foreign Corporations.
• Dividends from real estate investment Trusts (REITs).
• Dividends from Master Limited Partnerships (MLPs).
• Dividends paid on Stock that has not been held for the required period (generally less than 61 days within a specified timeframe).

For example, if an investor receives a dividend of $1,000 from a REIT, that amount is considered a nonqualified dividend and will be taxed at the investor’s Ordinary Income tax rate, which could be higher than the Capital gains rate.

In a case where an investor purchases Shares of a foreign company and receives a dividend, if the foreign Corporation does not meet IRS qualifications, that dividend will also be classified as nonqualified and subject to Ordinary Income tax.