Qualified dividend income under the 2003 Tax Act: this article discusses the basics of QDI, including corporations eligible to pay QDI and the required stock holding periods.

The 2003 Tax Act (1) reduces federal income tax on Qualified Dividend Income (QDI) by throwing it into the net capital gain calculation for capital gains and losses. A taxpayer's net capital gain will now be taxed at five percent if the taxpayer is in the 10 or 15 percent income tax bracket, and at 15 percent for taxpayers in the higher income tax brackets. (2) Importantly, the new law saves these capital gains rate reductions from the dreaded alternative minimum tax (AMT) by imposing the same tax rates on adjusted net capital gain under the AMT as under the regular tax. (3)

The 2003 Act exacts a price, however, when taxpayers take advantage of the act's reduced tax rates on dividends. Leveraged taxpayers claiming the reduced rates on QDI cannot count the dividend as investment income, (4) which will in turn reduce the amount of interest expense the taxpayer may deduct. The investment interest rules generally limit a taxpayer's deduction for such interest to the income from the taxpayer's investments. (5) As investment income other than QDI is the higher ordinary income rates, taking advantage of ...

If you are already a vLex customer, Access Here