For the 2025 U.S. federal tax year, an individual receives an ordinary dividend on common stock. Under IRC Section 1(h)(11), what holding period must be satisfied for that dividend to be taxed as a qualified dividend at the lower capital gains rates?
- The stock must be held for at least 61 days during the 121-day period that begins 60 days before the ex-dividend date
- The stock must be held for at least 30 days before the dividend is declared, with no requirement for any holding period after the dividend date
- There is no holding period requirement; every ordinary dividend paid by a domestic corporation automatically qualifies
- The stock must be held for more than one year, matching the long-term capital gains holding period
Correct answer: A. The stock must be held for at least 61 days during the 121-day period that begins 60 days before the ex-dividend date
To be taxed as a qualified dividend under IRC Section 1(h)(11), common stock generally must be held for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date, which the IRS phrases as holding the stock for at least 61 days of that 121-day window; preferred stock dividends attributable to periods over 366 days instead require at least 91 days within a 180-day window. The second option is wrong because the required holding period runs around the ex-dividend date over a 121-day window, not as a flat 30-day pre-declaration requirement with nothing required afterward. The third option is wrong because ordinary dividends only become qualified dividends if both the payer and holding-period conditions are met; qualification is not automatic. The fourth option is wrong because it confuses the qualified-dividend holding period with the unrelated more-than-one-year threshold that separates long-term from short-term capital gains.
Source: Internal Revenue Code Section 1(h)(11); IRS Topic no. 404, Dividends and other corporate distributions (2025)