What Is the 60 Day Dividend Rule and How Does It Affect Your Taxes?

Learn about the 60 day dividend rule and how holding periods impact qualified dividend tax treatment.

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The 60-day dividend rule requires shareholders to own or hold onto a stock for at least 60 days within the 121-day period that begins 60 days before the ex-dividend date for the dividend to be classified as ‘qualified’. This makes the dividend eligible for preferential tax treatment. Not meeting this requirement means the dividend will be taxed at ordinary income rates, which are usually higher. This rule encourages long-term investment rather than short-term profit-taking.

FAQs & Answers

  1. What happens if I don't meet the 60 day dividend rule? If you don't hold the stock for at least 60 days within the specified period, your dividends will be taxed at ordinary income tax rates rather than the lower qualified dividend rates.
  2. How is the 60 day holding period calculated for dividends? The 60 day holding period must be met within a 121-day window that begins 60 days before the stock's ex-dividend date.
  3. Why does the IRS require the 60 day dividend rule? The rule encourages long-term investment by ensuring only shareholders who hold stocks for a significant period receive preferential tax treatment on dividends.
  4. Are all dividends subject to the 60 day rule to be qualified? Most common dividends must meet the 60 day holding period to qualify, but some dividends from certain funds or sources may have different rules.

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