What are qualified dividends

Qualified dividends are paid by U.S. and certain foreign corporations. You must own the stock for over 60 days during a 121-day period centered on the ex-dividend date.

“Qualified dividends are dividends paid by U.S. corporations and certain foreign corporations.”

Foreign corporations and qualified status

A foreign corporation's dividends qualify if it's incorporated in a U.S. possession, eligible for tax treaty benefits with an information exchange section, or its stock trades readily in the U.S.

REITs don't qualify

Dividends from real estate investment trusts, or REITs, are generally not treated as qualified dividends, even if other requirements are met.

“dividends received from investments in real estate investment trusts, or REITs, generally aren't treated as qualified dividends.”

Tax rates for qualified dividends

Qualified dividends are taxed at long-term capital gains rates of 0%, 15%, or 20%, plus a 3.8% net investment income tax for higher earners. Non-qualified dividends face regular income tax rates.

Rental homes don't qualify for exclusion

The $500,000 capital gains exclusion applies only to principal residences where you lived. Rental properties don't qualify, even if you own them.

“The gain exclusion you are referring to applies only to sales of principal residences, meaning you live in the home.”

Principal residence exclusion rules

If you owned and lived in your main home for at least two of the five years before sale, up to $250,000 ($500,000 for joint filers) of gain is tax-free. Gains above that are taxed at capital gains rates.

Depreciation recapture on rentals

When you sell rental property held over one year at a gain, previously deducted depreciation is recaptured and taxed at a top rate of 25%, known as unrecaptured Section 1250 gain.

What is the net investment income tax

The 3.8% net investment income tax, enacted under the Affordable Care Act over 10 years ago, applies to single filers with modified AGI over $200,000 and joint filers over $250,000.

“The 3.8% net investment income (NII) tax was enacted more than 10 years ago under the Affordable Care Act.”

What counts as investment income

Net investment income includes dividends, capital gains, taxable interest, annuities, royalties, and passive rental income. Trade or business income from passive activities also counts if not subject to self-employment tax.

Thresholds haven't changed since 2013

The $200,000, $250,000, and $125,000 modified AGI thresholds for the net investment income tax haven't been indexed to inflation since 2013, so more filers pay it each year.

“the individual income levels for the 3.8% NII tax aren't indexed to inflation each year.”

Mutual fund capital gains aren't double taxation

When a fund sells stock and distributes gains to you, the fund reinvests those gains to buy more shares, increasing your tax basis. Your capital gain when you sell is lower because of the higher basis.

“the fund manager then reinvests those gains to buy more shares in the fund for you, thus increasing your tax basis in your fund shares.”