<As long as the amount paid in preferred dividends is not deducted in determining the taxable income of the corporation, it should still qualify for the reduced tax rate.>


This is true, but it is also my understanding that most will not qualify. IIRC, REIT preferreds and any with the word Trust in their title will not qualify. One of the reasons many companies go the route of using preferreds is that it does provide them with a tax deduction on their end. However I am sure there are more than a few exceptions. I am also sure that the ones that qualify will be trading at some sort of a premium.

It is important for each taxpayer to understand the nuances of the tax law. For example for a MFJ filer, the top of the 15% bracket is now 56.8k after your exemptions, itemized deductions and IRA or 401k contributions have been applied. That provides a lot more wiggle room for many people to fit through.

FWIW, I happen to think that now is a terrible time to be buying preferred shares. If you are dealing with a high quality issue (as most people should be) they are all trading at significant premiums to their call prices. Many that jump into this asset catagory without a complete understanding of how they work will be in for a rude awakening. They will suffer real losses when their shares get called in at par or trade at a discount to par. There is a lot more to understand about preferreds than just knowing the current yield.

One of the best sources I have found for researching preferred issues is at:

http://quantumonline.com/stklist.htm


I hope this may help.


BRG