Dividends paid on common and preferred stocks that have been held for more than 60 days also generally qualify for a special tax rate. A longer holding period may apply to certain preferred stock dividends or if the shareholder's risk of loss was protected. If you are in the highest tax bracket the rate is 20%, 15% for the middle tax brackets, and 0% for the 10% or 15% brackets. The reduced rate generally does not apply to dividends paid by a foreign corporation that is a foreign investment company, a passive foreign investment company, or a foreign holding company. Also, if the shareholder has an obligation to make related payments on certain other property (e.g., in a short sale), the reduced dividend rates would not apply.

These tax rates may benefit investors in stocks and real estate, including mutual funds, which generate dividend income and long-term capital gains. Investments that yield ordinary income (such as bonds and deferred gains from variable annuities, 401(k) plans and IRAs) may need to be evaluated against investment opportunities that yield dividend income and long-term capital gains.

SUGGESTION: Don't make your buy or sell investment decisions based on tax incentives. Buy or sell an asset if it makes economic sense and it is part of your overall investment strategy.