The core difference: tax rate and holding period

may have access to dividends are taxed at the long-term capital gains rate (0%, 15%, or 20%, depending on your income). Ordinary dividends are taxed at your regular income tax rate, which can be as high as 37%. The difference in what you owe can be substantial — sometimes hundreds of dollars on the same dividend payment.

The IRS created this split to encourage long-term investing. To get the lower may have access to rate, you must hold the stock for a minimum number of days around the dividend payment date. If you don't meet that holding period, the dividend counts as ordinary income instead, no matter what the company calls it.

Most dividends from U.S. companies and certain foreign companies can be may have access to if you hold long enough. But some dividends are always ordinary — those from real estate investment trusts (REITs), master limited partnerships (MLPs), and certain preferred stocks. Your brokerage statement will usually label which dividends are may have access to and which are ordinary.

Key Takeaways

  • may have access to dividends use the long-term capital gains tax rate (0%, 15%, or 20%), while ordinary dividends use your regular income tax bracket, which is typically higher.
  • You must hold the stock for at least 60 days within a 121-day window centered on the dividend payment date to get the may have access to rate.
  • Dividends from REITs, MLPs, and some preferred stocks are always taxed as ordinary income, even if you hold them for years.
  • Your brokerage will report may have access to and ordinary dividends separately on Form 1099-DIV, and you report them on different lines of your tax return.

The 60-day holding period rule

The IRS does not care how long you own a stock overall — only how long you hold it around the specific dividend payment. For most dividends, you must own the stock for at least 60 days during a 121-day window. That 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 buy a stock on Monday and it pays a dividend on Wednesday, that dividend is ordinary, not may have access to — even if you hold the stock for years afterward. The same applies if you sell the stock 30 days after the ex-dividend date. The IRS assumes you are trying to harvest the tax benefit without the investment risk, so it taxes you at the higher rate.

This rule trips up people who own dividend-paying stocks in taxable accounts and also reinvest dividends. If you sell shares to raise cash and then buy back similar shares within 30 days, you may reset the holding period clock. Track your purchase and sale dates carefully, or ask your brokerage to flag which dividends meet the holding period.

How your tax bracket affects the actual tax rate

The long-term capital gains rate is not a single number — it depends on your total taxable income. For 2024, the 0% rate applies to single filers with income up to $47,025 and married filers filing jointly up to $94,050. The 15% rate applies to income above those thresholds up to $518,900 (single) or $583,750 (married filing jointly). Income above those amounts is taxed at 20%.

Your ordinary dividend income stacks on top of your other income to determine which bracket you fall into. If you earn $60,000 in wages and receive $5,000 in ordinary dividends, you are taxed on $65,000 of income. That $5,000 might push you into a higher tax bracket — potentially from 12% to 22% or higher. may have access to dividends also stack on top of other income, but they use the capital gains brackets instead, which are wider and have lower rates.

This is why a person in the 22% tax bracket might pay 15% on may have access to dividends but 22% on ordinary dividends from the same company. The rate difference compounds if you have a large portfolio or receive dividends from multiple sources.

What counts as ordinary dividends

Certain types of investments always produce ordinary dividends, regardless of how long you hold them. Real estate investment trusts (REITs) are required by law to distribute most of their income to shareholders, and those distributions are taxed as ordinary income. If you own a REIT for 20 years, the dividends are still ordinary.

Master limited partnerships (MLPs) and publicly traded partnerships also produce ordinary dividends. These are common in energy and infrastructure sectors. Preferred stock dividends can be may have access to or ordinary depending on the specific stock — check your 1099-DIV or the company's investor relations page to be sure.

Dividends from foreign companies may also be ordinary if the company does not meet IRS requirements for may have access to treatment. U.S. companies and companies from countries with tax treaties with the United States usually may have access to, but smaller or newer foreign firms may not. Your brokerage will tell you which foreign dividends are may have access to on your 1099-DIV.

How to report each type on your tax return

Your brokerage sends you a Form 1099-DIV by January 31 each year. Box 1a shows ordinary dividends. Box 1b shows may have access to dividends. You report these on different parts of your tax return.

Ordinary dividends go on Schedule B (Interest and Ordinary Dividends) and then to line 5b of Form 1040. may have access to dividends go on Schedule B as well, but then to line 3a of Form 1040 (or the equivalent line on your tax software). This separation is crucial — if you put may have access to dividends in the wrong place, the IRS will tax them at your ordinary rate instead of the capital gains rate.

Most tax software handles this automatically if you enter the 1099-DIV correctly. If you file by hand or use a straightforward form, double-check that may have access to dividends are on the right line. The difference in tax owed can be hundreds of dollars, so it is worth verifying.

Common mistakes that cost money

The most frequent error is selling a stock shortly after buying it to capture a dividend, then buying it back. If you sell within 30 days before or after the ex-dividend date, the IRS treats the dividend as ordinary under the "wash sale" rules. You lose the may have access to rate and pay tax at your regular bracket instead.

Another mistake is assuming all dividends from a company are the same type. Some companies pay both may have access to and ordinary dividends in the same year, or switch between them. Always check your 1099-DIV rather than guessing based on past years.

A third error is forgetting that the holding period is 60 days, not 30 days or one year. Many people think "long-term" means the same thing for dividends as it does for capital gains (one year), but the dividend rule is stricter. You can own a stock for two years and still have a dividend taxed as ordinary if you did not hold it for 60 days around the payment date.

Frequently Asked Questions

Do I lose the may have access to rate if I sell the stock after the dividend is paid?

No. The holding period ends 60 days after the ex-dividend date. If you sell after that window closes, the dividend is still may have access to. The rule is about when you hold the stock relative to the ex-dividend date, not when you sell.

What if my brokerage statement shows a dividend as may have access to but my 1099-DIV shows it as ordinary?

Use the 1099-DIV. Your brokerage may label a dividend as may have access to when it arrives, but the final information happens after the holding period window closes. The 1099-DIV reflects the final count and is what the IRS uses to check your return.

Are dividends from dividend reinvestment plans (DRIPs) treated differently?

No. Whether you receive the dividend in cash or reinvest it automatically, the holding period rule and may have access to status are the same. The IRS cares about when you owned the stock, not what you did with the payment.

Can I deduct losses to offset ordinary dividends?

Yes, but capital losses offset capital gains first. If you have both capital gains and capital losses in a year, losses reduce gains before they reduce ordinary income. Ordinary dividends are taxed as income, so they do not directly offset capital losses.

Do I owe state income tax on may have access to dividends at the capital gains rate too?

That depends on your state. Some states tax may have access to dividends at a lower rate than ordinary income; others do not. A few states have no income tax at all. Check your state's tax agency website or ask a tax preparer about your state's rules.