Foreign income. If you are a U.S. citizen with dividend income from sources outside the United States (foreign income), you must report that
income on your tax
return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or
not you receive a Form 1099
from the foreign payer.
Introduction
This chapter discusses the tax treatment of:
Ordinary dividends,
Capital gain distributions,
Nondividend distributions, and
Other distributions you may receive from a corporation or a mutual fund.
This chapter also explains how to report dividend income on your tax return.
Dividends are distributions of money, stock, or other property paid to you by a corporation. You also may
receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. However, some
amounts you receive that
are called dividends are actually interest income. (See Dividends that are actually interest under Taxable Interest in chapter
7.)
Most distributions are paid in cash (or check). However, distributions can consist of more stock, stock
rights, other property, or services.
Useful Items - You may want to see:
Publication
514 Foreign Tax Credit for Individuals
550 Investment Income and Expenses
564 Mutual Fund Distributions
Form (and Instructions)
Schedule B (Form 1040) Interest and Ordinary Dividends
Schedule 1 (Form 1040A) Interest and Ordinary Dividends for Form 1040A Filers
General Information
This section discusses general rules for dividend income.
Tax on investment income of a child under age 14.
Part of a child's 2005 investment income may be taxed at the parent's tax rate. This may happen if all of the following
are true.
The child was under age 14 at the end of 2005. A child born on January 1, 1992, is considered to be age 14 at the end of 2005.
The child had more than $1,600 of investment income (such as taxable interest and dividends) and has to file a tax return.
Either parent was alive at the end of 2005.
If all of these statements are true, Form 8615, Tax for Children Under Age 14 With Investment Income of More Than $1,600,
must be completed and
attached to the child's tax return. If any of these statements is not true, Form 8615 is not required and the child's income
is taxed at his or her
own tax rate.
However, the parent can choose to include the child's
interest and dividends on the parent's return if certain requirements are met. Use Form 8814, Parents' Election To Report
Child's Interest and
Dividends, for this purpose.
For more information about the tax on investment income of children and the parents' election, see chapter 31.
Beneficiary of an estate or trust.Dividends and other distributions you receive as a beneficiary of
an estate or trust are generally taxable income. You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income,
Deductions, Credits,
etc., from the fiduciary. Your copy of Schedule K-1 and its instructions will tell you where to report the income on your
Form 1040.
Social security number (SSN).You must give your name and SSN (or individual taxpayer identification number (ITIN)) to any person
required by federal tax law to make a return, statement, or other document that relates to you. This includes payers of dividends.
If you do not give
your SSN or ITIN to the payer of dividends, you may have to pay a penalty.
For more information on SSNs and ITINs, see Social security number (SSN) in chapter 7.
Backup withholding.
Your dividend income is generally not subject to regular withholding. However, it may be subject to backup withholding
to ensure that income tax is
collected on the income. Under backup withholding, the payer of dividends must withhold, as income tax, 28% of the amount
you are paid.
Backup withholding may also be required if the Internal Revenue Service (IRS) has determined that you underreported
your interest or dividend
income. For more information, see Backup Withholding in chapter 4.
Stock certificate in two or more names.
If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share
of any dividends from the
stock is determined by local law.
Form 1099-DIV.
Most corporations use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from
them during the year. Keep this
form with your records. You do not have to attach it to your tax return.
Dividends not reported on Form 1099-DIV.
Even if you do not receive Form 1099-DIV, you must still report all of your taxable dividend income. For example,
you may receive distributive
shares of dividends from partnerships or subchapter S corporations. These dividends are reported to you on Schedule K-1 (Form
1065) and Schedule K-1
(Form 1120S).
Reporting tax withheld.
If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld.
Nominees.
If someone receives distributions as a nominee for you, that person will give you a Form 1099-DIV, which will show
distributions received on your
behalf.
Form 1099-MISC.
Certain substitute payments in lieu of dividends or tax-exempt interest that are received by a broker on your behalf
must be reported to you on
Form 1099-MISC, Miscellaneous Income, or a similar statement. See Reporting Substitute Payments under Short Sales in chapter 4
of Publication 550 for more information about reporting these payments.
Incorrect amount shown on a Form 1099.
If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer
for a corrected form. The new
Form 1099 you receive will be marked “Corrected.”
Dividends on stock sold.
If stock is sold, exchanged, or otherwise disposed of after a dividend is declared, but before it is paid, the owner
of record (usually the payee
shown on the dividend check) must include the dividend in income.
Dividends received in January.
If a regulated investment company (mutual fund) or real estate investment trust (REIT) declares a dividend (including
any exempt-interest dividend
or capital gain distribution) in October, November, or December payable to shareholders of record on a date in one of those
months but actually pays
the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. You
report the dividend in the
year it was declared.
Ordinary Dividends
Ordinary (taxable) dividends are the most common type of distribution from a corporation. They are paid out of the earnings
and profits of a
corporation and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive
on common or preferred
stock is an ordinary dividend unless the paying corporation tells you otherwise. Ordinary dividends will be shown in box 1a
of the Form 1099-DIV you
receive.
Qualified Dividends
Qualified dividends are the ordinary dividends that are subject to the same 5% or 15% maximum tax rate that applies to net
capital gain. They
should be shown in box 1b of the Form 1099-DIV you receive.
Qualified dividends are subject to the 15% rate if the regular tax rate that would apply is 25% or higher. If the regular
tax rate that would apply
is lower than 25%, qualified dividends are subject to the 5% rate.
To qualify for the 5% or 15% maximum rate, all of the following requirements must be met.
The dividends must have been paid by a U.S. corporation or a qualified foreign corporation. (See Qualified foreign corporation
later.)
The dividends are not of the type listed later under Dividends that are not qualified dividends.
You meet the holding period (discussed next).
Holding period.
You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend
date. The ex-dividend date
is the first date following the declaration of a dividend on which the buyer of a stock will not receive the next dividend
payment. Instead, the
seller will get the dividend.
When counting the number of days you held the stock, include the day you disposed the stock, but not the day you acquired
it. See the examples
later.
Exception for preferred stock.
In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins
90 days before the ex-dividend
date if the dividends are due to periods totaling more than 366 days. If the preferred dividends are due to periods totaling
less than 367 days, the
holding period in the previous paragraph applies.
Example 1.
You bought 5,000 shares of XYZ Corp. common stock on June 30, 2005. XYZ Corp. paid a cash dividend of 10 cents per share.
The ex-dividend date was
July 8, 2005. Your Form 1099-DIV from XYZ Corp. shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends).
However, you sold the
5,000 shares on August 3, 2005. You held your shares of XYZ Corp. for only 34 days of the 121-day period (from July 1, 2005,
through August 3, 2005).
The 121-day period began on May 9, 2005 (60 days before the ex-dividend date), and ended on September 6, 2005. You have no
qualified dividends from
XYZ Corp. because you held the XYZ stock for less than 61 days.
Example 2.
Assume the same facts as in Example 1 except that you bought the stock on July 7, 2005 (the day before the ex-dividend date),
and you sold the
stock on September 8, 2005. You held the stock for 63 days (from July 8, 2005, through September 8, 2005). The $500 of qualified
dividends shown in
box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from
July 8, 2005, through
September 6, 2005).
Example 3.
You bought 10,000 shares of ABC Mutual Fund common stock on June 30, 2005. ABC Mutual Fund paid a cash dividend of 10 cents
a share. The
ex-dividend date was July 8, 2005. The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated
as qualified dividends
equals 2 cents per share. Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends
of $200. However,
you sold the 10,000 shares on August 3, 2005. You have no qualified dividends from ABC Mutual Fund because you held the ABC
Mutual Fund stock for less
than 61 days.
Holding period reduced where risk of loss is diminished.
When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which
you meet any of the following
conditions.
You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially
identical
stock or securities.
You were grantor (writer) of an option to buy substantially identical stock or securities.
Your risk of loss is diminished by holding one or more other positions in substantially similar or related property.
For information about how to apply condition (3), see Regulations section 1.246-5.
Qualified foreign corporation.
A foreign corporation is a qualified foreign corporation if it meets any of the following conditions.
The corporation is incorporated in a U.S. possession.
The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury
Department
determines is satisfactory for this purpose and that includes an exchange of information program. For a list of those treaties,
seeTable
8-1.
The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established
securities market in the United States. See Readily tradable stock, later.
Exception.
A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax
year in which the dividends are
paid or during its previous tax year.
Readily tradable stock.
Any stock (such as common, ordinary stock, or preferred stock) or an American depositary receipt in respect of that
stock, is considered to satisfy
requirement (3) if it is listed on one of the following securities markets: the New York Stock Exchange, the NASDAQ Stock
Market, the American Stock
Exchange, the Boston Stock Exchange, the Cincinnati Stock Exchange, the Chicago Stock Exchange, the Philadelphia Stock Exchange,
or the Pacific
Exchange, Inc.
Dividends that are not qualified dividends.
The following dividends are not qualified dividends. They are not qualified dividends even if they are shown in box
1b of Form 1099-DIV.
Capital gain distributions.
Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U.S. building and loan associations,
U.S. savings
and loan associations, federal savings and loan associations, and similar financial institutions. (Report these amounts as
interest
income.)
Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in
which the
dividends were paid or during the corporation's previous tax year.
Dividends paid by a corporation on employer securities which are held on the date of record by an employee stock ownership
plan (ESOP)
maintained by that corporation.
Dividends on any share of stock to the extent that you are obligated (whether under a short sale or otherwise) to make related
payments for
positions in substantially similar or related property.
Payments in lieu of dividends, but only if you know or have reason to know that the payments are not qualified dividends.
Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments
are not
qualified dividends.
Table 8-1. Income Tax Treaties
Income tax treaties that the United States has with the following countries satisfy requirement (2)
under Qualified foreign corporation.
Australia
Ireland
Romania
Austria
Israel
Russian
Belgium
Italy
Federation
Canada
Jamaica
Slovak
China
Japan
Republic
Cyprus
Kazakhstan
Slovenia
Czech
Korea
South Africa
Republic
Latvia
Spain
Denmark
Lithuania
Sweden
Egypt
Luxembourg
Switzerland
Estonia
Mexico
Thailand
Finland
Morocco
Trinidad and
France
Netherlands
Tobago
Germany
New Zealand
Tunisia
Greece
Norway
Turkey
Hungary
Pakistan
Ukraine
Iceland
Philippines
United
India
Poland
Kingdom
Indonesia
Portugal
Venezuela
Dividends Used to Buy More Stock
The corporation in which you own stock may have a dividend reinvestment plan. This plan lets you choose to use your dividends to buy
(through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member
of this type of plan and
you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as
income.
If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value,
you must report as
dividend income the fair market value of the additional stock on the dividend payment date.
You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used
to buy the additional
stock. But you may be able to deduct the service charge. See chapter 28 for more information about deducting expenses of producing
income.
In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value.
If you choose to do
this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock
you buy. When figuring this
amount, use the fair market value of the stock on the dividend payment date.
Money Market Funds
Report amounts you receive from money market funds as dividend income. Money market funds are a type
of mutual fund and should not be confused with bank money market accounts that pay interest.
Capital Gain Distributions
Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account
by regulated investment companies (commonly called mutual funds) and real estate investment trusts (REITs). They will be shown
in box 2a of the Form
1099-DIV you receive from the mutual fund or REIT.
Report capital gain distributions as long-term capital gains regardless of how long you owned your shares in the mutual fund
or REIT.
Undistributed capital gains of mutual funds and REITs.Some mutual funds and REITs keep their long-term capital
gains and pay tax on them. You must treat your share of these gains as distributions, even though you did not actually receive
them. However, they are
not included on Form 1099-DIV. Instead, they are reported to you on Form 2439, Notice to Shareholder of Undistributed Long-Term
Capital Gains.
Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column
(f), line 11.
The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. You take credit for this tax
by including it on Form 1040,
line 70, and checking box a on that line. Attach Copy B of Form 2439 to your return, and keep Copy C for your records.
Basis adjustment.
Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report
and the credit you claim for the
tax paid.
Additional information.
For more information on the treatment of distributions from mutual funds, see Publication 564.
Nondividend Distributions
A nondividend distribution is a distribution that is not paid out of the earnings and profits of a
corporation. You should receive a Form 1099-DIV or other statement from the corporation showing the nondividend distribution.
On Form 1099-DIV, a
nondividend distribution will be shown in box 3. If you do not receive such a statement, you report the distribution as an
ordinary dividend.
Basis adjustment.
A nondividend distribution reduces the basis of your stock. It is not taxed until your basis in the stock is fully
recovered. This nontaxable
portion is also called a return of capital. It is a return of your investment in the stock of the company. If you buy stock
in a corporation in
different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution,
reduce the basis of your
earliest purchases first.
When the basis of your stock has been reduced to zero, report any additional nondividend distribution that you receive
as a capital gain. Whether
you report it as a long-term or short-term capital gain depends on how long you have held the stock. See Holding Period in chapter 14.
Example.
You bought stock in 1993 for $100. In 1996, you received a nondividend distribution of $80. You did not include this amount
in your income, but you
reduced the basis of your stock to $20. You received a nondividend distribution of $30 in 2005. The first $20 of this amount
reduced your basis to
zero. You report the other $10 as a long-term capital gain for 2005. You must report as a long-term capital gain any nondividend
distribution you
receive on this stock in later years.
Liquidating Distributions
Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during
a partial or complete liquidation of a corporation. These distributions are, at least in part, one form of a return of capital.
They may be paid in
one or more installments. You will receive a Form 1099-DIV from the corporation showing you the amount of the liquidating
distribution in box 8 or 9.
For more information on liquidating distributions, see chapter 1 of Publication 550.
Distributions of Stock and Stock Rights
Distributions by a corporation of its own stock are commonly known as stock dividends. Stock rights (also known as
“stock options”) are distributions by a corporation of rights to acquire the corporation's stock. Generally, stock dividends and stock rights
are
not taxable to you, and you do not report them on your return.
Taxable stock dividends and stock rights.
Distributions of stock dividends and stock rights are taxable to you if any of the following apply.
You or any other shareholder has the choice to receive cash or other property instead of stock or stock rights.
The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's
assets or
earnings and profits to other shareholders.
The distribution is in convertible preferred stock and has the same result as in (2).
The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders.
The distribution is on preferred stock. (The distribution, however, is not taxable if it is an increase in the conversion
ratio of
convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise
result in reducing
the conversion right.)
The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities.
If you receive taxable stock dividends or stock rights, include their fair market value at the time of the distribution in
your income.
Preferred stock redeemable at a premium.
If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption
premium) generally is taxable as
a constructive distribution of additional stock on the preferred stock. For more information, see chapter 1 of Publication
550.
Basis.
Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed.
If you receive stock or stock
rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for
information on how to figure their basis.
Fractional shares.You may not own enough stock in a corporation to receive a full share of stock if the
corporation declares a stock dividend. However, with the approval of the shareholders, the corporation may set up a plan in
which fractional shares
are not issued, but instead are sold, and the cash proceeds are given to the shareholders. Any cash you receive for fractional
shares under such a
plan is treated as an amount realized on the sale of the fractional shares. You must determine your gain or loss and report
it as a capital gain or
loss on Schedule D (Form 1040). Your gain or loss is the difference between the cash you receive and the basis of the fractional
shares sold.
Example.
You own one share of common stock that you bought on January 3, 1997, for $100. The corporation declared a common stock dividend
of 5% on June 30,
2005. The fair market value of the stock at the time the stock dividend was declared was $200. You were paid $10 for the fractional-share
stock
dividend under a plan described in the above paragraph. You figure your gain or loss as follows:
Fair market value of old stock
$200.00
Fair market value of stock dividend (cash received)
+10.00
Fair market value of old stock and stock dividend
$210.00
Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100)
$95.24
Basis (cost) of stock dividend (($10 ÷ $210) × $100)
+ 4.76
Total
$100.00
Cash received
$10.00
Basis (cost) of stock dividend
- 4.76
Gain
$5.24
Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the
stock dividend is a
long-term capital gain.
Scrip dividends.
A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share.
The certificate is
generally nontaxable when you receive it. If you choose to have the corporation sell the certificate for you and give you
the proceeds, your gain or
loss is the difference between the proceeds and the portion of your basis in the corporation's stock that is allocated to
the certificate.
However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate
is taxable when you receive
it. You must include its fair market value in income on the date you receive it.
Other Distributions
You may receive any of the following distributions during the year.
Exempt-interest dividends.
Exempt-interest dividends you receive from a regulated investment company (mutual fund) are not included in your taxable
income. You will receive a
notice from the mutual fund telling you the amount of the exempt-interest dividends you received. Exempt-interest dividends
are not shown on Form
1099-DIV or Form 1099-INT.
Information reporting requirement.
Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return.
This is an information
reporting requirement and does not change the exempt-interest dividends to taxable income.
Alternative minimum tax treatment.
Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax.
See Alternative Minimum
Tax in chapter 30 for more information.
Dividends on insurance policies.Insurance policy dividends that the insurer keeps and uses to pay your premiums are not taxable. However,
you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company.
If dividends on an insurance contract (other than a modified endowment contract) are
distributed to you, they are a partial return of the premiums you paid. Do not include them in your gross income until they
are more than the total of
all net premiums you paid for the contract. Report any taxable distributions on insurance policies on Form 1040, line 16b,
or Form 1040A, line 12b.
Dividends on veterans' insurance.
Dividends you receive on veterans' insurance policies are not taxable. In addition, interest on dividends left with
the Department of Veterans
Affairs is not taxable.
Patronage dividends.
Generally, patronage dividends you receive in money from a cooperative organization are included in your income.
Do not include in your income patronage dividends you receive on:
Property bought for your personal use, or
Capital assets or depreciable property bought for use in your business. But you must reduce the basis (cost) of the items
bought. If the
dividend is more than the adjusted basis of the assets, you must report the excess as income.
These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative.
Alaska Permanent Fund dividends.Do not report these amounts as dividends. Instead, report these amounts on Form 1040,
line 21, Form 1040A, line 13, or Form 1040EZ, line 3.
How To Report Dividend Income
Generally, you can use either Form 1040 or Form 1040A to report your dividend income. Report the total of
your ordinary dividends on line 9a of Form 1040 or Form 1040A. Report qualified dividends on line 9b.
If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form
1040. See Capital gain distributions only in chapter 16. If you receive nondividend distributions required to be reported as capital gains,
you must use Form 1040. You cannot use Form 1040EZ if you receive any dividend income.
Form 1099-DIV.
If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form
1099-DIV. Even if you do not
receive Form 1099-DIV, you must report all of your taxable dividend income.
See Form 1099-DIV for more information on how to report dividend income.
Form 1040A.
You must complete Schedule 1 (Form 1040A), Part II, and attach it to your Form 1040A, if:
Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or
You received, as a nominee, dividends that actually belong to someone else.
List on line 5 each payer's name and the amount of ordinary dividends you received. If you received a Form 1099-DIV
from a brokerage firm, list the
brokerage firm as the payer.
Enter on line 6 the total of the amounts listed on line 5. Also enter this total on Form 1040A, line 9a.
Form 1040.You must fill in Schedule B, Part II, and attach it to your Form 1040, if:
Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or
You received, as a nominee, dividends that actually belong to someone else.
If your ordinary dividends are more than $1,500, you must also complete Schedule B, Part III.
List on Schedule B, Part II, line 5, each payer's name and the amount of ordinary dividends you received. If your
securities are held by a
brokerage firm (in “street name”), list the name of the brokerage firm that is shown on Form 1099-DIV as the payer. If your stock is held by a
nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee
and the dividends you
received or for which you were credited.
Enter on line 6 the total of the amounts listed on line 5. Also enter this total on Form 1040, line 9a.
Qualified dividends.
Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. Do not include any of the
following on line 9b.
Qualified dividends you received as a nominee. See Nominees under How to Report Dividend Income in chapter 1 of
Publication 550.
Dividends on stock for which you did not meet the holding period. See Holding period earlier under Qualified
Dividends.
Dividends on any share of stock to the extent that you are obligated (whether under a short sale or otherwise) to make related
payments for
positions in substantially similar or related property.
Payments in lieu of dividends, but only if you know or have reason to know that the payments are not qualified dividends.
Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments
are not
qualified dividends.
If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax
Worksheet in the Form 1040 or
1040A instructions or the Schedule D Tax Worksheet in the Schedule D instructions, whichever applies. Enter qualified dividends
on line 2 of the
worksheet.
Investment interest deducted.
If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that
are eligible for the 5% or 15%
tax rate. Reduce it by the amount of qualified dividends you choose to include in investment income when figuring the limit
on your investment
interest deduction. This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet.
For more information about
the limit on investment interest, see Interest Expenses in chapter 23.
Expenses related to dividend income.
You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040).
See chapter 28 for general
information about deducting expenses of producing income.
More information.For more information about how to report dividend income, see chapter 1 of Publication 550 or the
instructions for the form you must file.
