Key Takeaways
- You must have owned the stock for at least 60 days during a 121-day window around the dividend payment date for it to count as may have access to.
- Dividends from U.S. corporations and most foreign corporations in countries with tax treaties with the U.S. can be may have access to; dividends from REITs, master limited partnerships, and certain other entities cannot.
- Dividends paid on shares you borrowed to short-sell, or on shares held in certain retirement accounts, do not count as may have access to.
- Your brokerage will report may have access to and ordinary dividends separately on Form 1099-DIV, so you do not have to calculate this yourself.
- If you do not meet the holding period, the dividend is taxed as ordinary income at your regular tax rate, which can be significantly higher.
The 60-Day Holding Period Rule
The most common reason a dividend fails to may have access to is that you did not own the stock long enough. The IRS requires you to have held the shares for at least 60 days during a 121-day period that starts 60 days before the ex-dividend date — the date on which new buyers no longer receive the upcoming dividend payment.
The 121-day window is centered around the ex-dividend date. If the ex-dividend date is June 15, the window runs from April 16 to August 14. You must own the stock for 60 of those 121 days. If you bought on May 1 and sold on July 15, you held it for 76 days within the window, so the dividend qualifies. If you bought on June 10 and sold on July 20, you held it for only 40 days within the window, so it does not.
Days you did not own the stock do not count, even if you owned it before and after. If you sold the shares before the ex-dividend date, you do not receive the dividend at all. If you sold them after the ex-dividend date but before you hit 60 days of ownership, the dividend is ordinary income, not may have access to.
Which Companies and Funds Pay may have access to Dividends
Not every dividend-paying entity qualifies. Dividends from U.S. corporations are almost always may have access to if you meet the holding period. Dividends from foreign corporations are may have access to only if the company is incorporated in a country that has an income tax treaty with the United States, or if the stock trades on a U.S. exchange and meets other conditions.
Dividends from the following do not may have access to no matter how long you hold them: real estate investment trusts (REITs), master limited partnerships (MLPs), mutual funds that invest primarily in bonds, and certain other pass-through entities. These entities are taxed differently at the entity level, so their distributions to you are taxed as ordinary income. Your 1099-DIV will show these separately.
If you own a mutual fund or exchange-traded fund (ETF), the fund itself receives dividends from the stocks it holds. The fund then distributes those dividends to you. The fund's 1099-DIV will specify which portion of your distribution came from may have access to dividends and which came from ordinary dividends, based on what the fund received and how long the fund held each position.
Situations That Disqualify a Dividend
Even if you meet the holding period and the company qualifies, certain circumstances prevent a dividend from being taxed as may have access to. If you borrowed shares to make a short sale, any dividends paid on those borrowed shares are ordinary income. The IRS treats this as a way to avoid the holding period rule.
Dividends on shares held in a traditional IRA, Roth IRA, or other retirement account are not reported as may have access to or ordinary on your personal tax return at all — they are sheltered inside the account. When you withdraw money from the account later, the withdrawal is taxed according to the account type, not based on how the money was earned inside it.
If you bought shares specifically to receive a dividend and sold them shortly after, the IRS may reclassify the dividend as ordinary income if it determines you did not hold the shares for investment purposes. This is rare and requires clear evidence of intent, but it can happen with high-dividend stocks purchased days before the ex-dividend date.
How Your Brokerage Reports This to the IRS
You do not have to track the holding period yourself or determine which dividends may have access to. Your brokerage sends you a Form 1099-DIV each January showing dividends received during the previous year. Box 1a lists ordinary dividends; Box 1b lists may have access to dividends. The brokerage has already applied the holding period rule and company type to sort them.
When you file your tax return, you report may have access to dividends on Schedule B (if you have more than $1,500 in dividends) or directly on Form 1040. Tax software will ask you to enter the amounts from Box 1a and Box 1b of your 1099-DIV. The software then applies the correct tax rate to each category.
If your brokerage made an error — for example, reporting a dividend as may have access to when you sold before meeting the 60-day requirement — you can correct it on your return. Keep records of your purchase and sale dates so you can verify the holding period if the IRS questions it.
The Tax Rate Difference
The reason may have access to dividends matter is the tax rate. may have access to dividends are taxed at 0%, 15%, or 20% depending on your taxable income and filing status. Ordinary dividends are taxed at your regular income tax rate, which ranges from 10% to 37%.
For example, if you are single with $60,000 in taxable income, your ordinary income is taxed at 22%. A $1,000 ordinary dividend adds $220 to your tax bill. That same $1,000 as a may have access to dividend is taxed at 15%, adding only $150. The difference is $70 per $1,000 in may have access to dividends.
The exact rate depends on your total taxable income, not just the dividend amount. The IRS publishes tax tables each year showing which income ranges fall into the 0%, 15%, and 20% brackets for may have access to dividends. Your tax software calculates this automatically.
Common Mistakes to Avoid
One frequent error is counting the purchase date or sale date as part of the holding period. The IRS counts the day after you buy and the day of the sale, but not the purchase day itself. If you bought on January 10 and sold on March 10, you held it for 59 days, not 60, and the dividend does not may have access to.
Another mistake is assuming all dividends from a mutual fund are may have access to. Funds that hold bonds, preferred stock, or international securities often distribute a mix of may have access to and ordinary dividends. Read the 1099-DIV carefully — Box 1a and Box 1b will show the split.
Do not assume a dividend qualifies just because the company is large or well-known. REITs and MLPs, which include some major names in real estate and energy, never pay may have access to dividends. Check the company type before you buy if may have access to dividend treatment matters to your tax plan.
Frequently Asked Questions
Does the holding period reset if I sell and buy the same stock again?
Yes. If you sell a stock and buy it back, the new purchase starts a new holding period. The old holding period does not carry over. If you sold before meeting 60 days and bought back the same stock, you start counting from zero on the new purchase date.
What if my brokerage reports a dividend as may have access to but I know I did not hold it long enough?
Report it correctly on your return. You can file Form 8949 or a statement with your return explaining the correction. Keep your trade confirmations showing the purchase and sale dates. The IRS will accept the correction if your records support it.
Are dividends from Canadian or European stocks may have access to?
Only if the country has a tax treaty with the United States and the stock meets other conditions, or if it trades on a U.S. exchange. Canada, the United Kingdom, France, Germany, and Japan all have treaties, so dividends from most major companies in those countries can be may have access to. Check your 1099-DIV — your brokerage will have already made this information.
Do I have to hold the stock on the payment date, or just the ex-dividend date?
You only need to hold it on the ex-dividend date. The payment date is when the money arrives in your account, but it does not matter for the holding period. What matters is that you owned the shares on the ex-dividend date and for 60 days in the 121-day window around it.
If I inherit stock, does the holding period start from when I inherited it or when the original owner bought it?
It starts from when you inherited it. Inherited shares get a new holding period for may have access to dividend purposes. You must hold the inherited shares for 60 days in the 121-day window around the ex-dividend date for any dividends to be may have access to.