| July
10, 2003-- For tax years beginning after December 31,
2002, qualified dividend income will be added to a
taxpayer’s net capital gain and taxed at the new capital
gains rates. Qualified
dividend income is defined as dividends received from
domestic corporations and qualified foreign corporations.
Qualified dividends received by common trust funds
and passed through to the fund participants will also
qualify. The
definition of net capital gain is the excess of long-term
gains over the long-term losses and short-term gains over
long-term losses for the year. Qualified dividend
income stands outside the “pot” of capital gains and
losses that are netted against each other to make up the net
capital gain and cannot be offset or reduced by other types
of capital losses, and will be taxed in full at the
appropriate capital gains rate.
Qualified
dividend income does not include:
1.
Stock held by shareholders that does not meet the
holding period
requirements.
2.
Dividends to the extent the taxpayer are obligated to
make related
payments in substantially
similar or related property.
3.
Payments in lieu of dividends (I.e. dividends paid
with respect to stock
that a broker has loaned to a
customer, where the dividends are paid
to the short sale buyer before the
short sale is closed.
4.
Any dividend from a corporation which for the tax
year of the
corporation in which the
distribution was made, or the preceding tax
year, is a corporation exempt from
tax, i.e. charitable, religious
organization, etc.
5.
Any amount allowed as a deduction under the deduction
for dividends
paid by mutual savings banks.
6.
Certain ESOP related dividends
7.
Dividends treated by the taxpayer as investment
income for purposes
of the investment interest
deduction limit.
Recipients of dividends from a
Regulated Investment Company (RIC) or Real Estate Investment
Trust (REIT) may treat those dividends as qualifying
dividend income to the extent the RIC or REIT has received
dividend income that’s eligible for qualifying dividend
income treatment, unless 95% or more of the RIC’s or
REIT’s gross income, as computed under the special rules
applicable to those entities, consist of dividend income
eligible for qualifying dividend income treatment.
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