What this line means
Dividends that qualify for the lower long-term capital gains tax rate instead of your ordinary income tax rate. Most dividends from U.S. corporations and qualified foreign corporations are qualified dividends, but only if you held the stock long enough. This amount is a subset of your ordinary dividends on line 3b — it is included there, not added to it.
Does this apply to you?
- You received dividends from stocks held in a taxable brokerage account
- You own shares in mutual funds or ETFs that paid qualifying dividends
- You received dividends shown in Box 1b of your 1099-DIV
- You hold individual stocks of U.S. companies and received regular dividend payments
Easy to overlook
The holding period requirement A dividend only qualifies for the lower tax rate if you held the stock for more than 60 days during the 121-day period surrounding the ex-dividend date. If you bought a stock right before the dividend and sold it shortly after, the dividend is ordinary income taxed at your regular rate — even if the 1099-DIV reports it as “qualified.” Your broker may report it as qualified, but the IRS holds you responsible for the holding period test. 1 IRS Publication 550 — Investment Income and Expenses
REIT dividends are generally not qualified Dividends from Real Estate Investment Trusts (REITs) are usually taxed as ordinary income, not at the qualified dividend rate. They show up on your 1099-DIV but typically not in Box 1b. Filers who own REITs through individual holdings or REIT-focused funds sometimes assume all their dividends get the lower rate. 2 General filing pattern — REIT dividends not qualified
Watch out for this
Assuming line 3a is additional income on top of line 3b. Qualified dividends are already included in your ordinary dividends on line 3b. Line 3a exists so the IRS can apply the lower capital gains tax rate to the qualified portion. If you add lines 3a and 3b together, you are double-counting your dividend income.
Footnotes
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IRS Publication 550, Investment Income and Expenses. https://www.irs.gov/pub/irs-pdf/p550.pdf ↩
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IRS Form 1040 Instructions. See also IRS Publication 17, Your Federal Income Tax. https://www.irs.gov/pub/irs-pdf/p17.pdf ↩