Under what condition would a cash dividend received by a retail investor be taxed at a preferred rate?

A cash dividend received by a retail investor is taxed at a preferred rate, specifically the qualified dividend rate, when certain holding period requirements are met. The holding period is crucial because the Internal Revenue Service (IRS) stipulates that to qualify for this preferred tax rate, the investor must hold the stock for a minimum period surrounding the ex-dividend date.

In this case, holding the stock for at least 60 days surrounding the ex-dividend date is the correct threshold to qualify for the lower tax rate on the dividend. This period ensures that the investor maintains a genuine investment in the stock rather than engaging in short-term trading strategies to capture dividend payments without having a long-term investment perspective.

The ex-dividend date is the cutoff date for when new buyers of the stock will not receive the declared dividend, and the surrounding holding period includes both a 30-day period before and a 30-day period after the ex-dividend date. Holding the stock for this duration qualifies the dividend as a qualified dividend, thus allowing it to be taxed at the favorable capital gains rate, which is typically lower than ordinary income rates.