Definition
A dividend that meets IRS rules, mostly about how long you held the shares, and is therefore taxed at the lower long-term capital gains rates instead of ordinary income rates. Most dividends from U.S. companies held for more than about 60 days qualify; REIT dividends and bond interest generally do not.
Why it matters
The same dividend dollar can face very different tax rates depending on the qualified label and the account it sits in. It is a core reason tax-inefficient payers like REITs are often held inside retirement accounts rather than taxable ones.
Example
An investor receives $3,000 of dividends from a broad stock fund held all year, taxed at preferential capital gains rates. The same $3,000 paid by a REIT in the same taxable account would be taxed as ordinary income at their bracket rate, a noticeably larger bill.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.