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Subject:  Re: buying preferred stocks for income Date:  6/17/2019  12:29 PM
Author:  BruceCM Number:  94004 of 96864

In addition to the preceding reply

When you say "for income", I assume then that you are taking these preferred stock dividends as required household income as they are produced. If so, then any preferred stock held in a Traditional IRA will produce dividends that will be treated as ordinary income, regardless of the stock's holding period. If held in a taxable account and the preferred stock is issued by a business development company or REIT, most to all of the dividend will be ordinary income. If the preferred stock is really Exchange Traded Debt (they look very similar) or a trust preferred (issued by a bank), then its dividends will be ordinary income. But if issued by a C-Corporation, such as a Utility, Insurance company or bank, the dividend will be qualifying, meaning that if you've met the stock holding period (as described previously), then it will be a tax favored qualified dividend, taxed the same as net long term capital gains.

Another factor with the recent tax law change is REIT dividends, common and preferred, when held in a taxable account, are eligible for the Sec. 199A 20% deduction on the qualifying part of the dividend as shown in Box 5 of the form 1099-DIV. This deduction is not available to those preferred stock held in a tax deferred (IRA or retirement plan) account.

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