Exempt-Interest Dividend

Search Dictionary

Definition of 'Exempt-Interest Dividend'

An exempt-interest dividend is a dividend that is not subject to federal income tax. This type of dividend is typically paid by a regulated investment company (RIC) or a real estate investment trust (REIT). RICs and REITs are pass-through entities, which means that they do not pay taxes on their income. Instead, their shareholders pay taxes on the income that they receive from the RIC or REIT.

There are a few requirements that must be met in order for a dividend to be considered exempt-interest. First, the dividend must be paid by a RIC or REIT. Second, the dividend must be paid from the RIC's or REIT's net investment income. Net investment income is the income that the RIC or REIT earns from its investments, such as interest, dividends, and capital gains. Third, the dividend must be paid to a shareholder who is a U.S. citizen or resident.

Exempt-interest dividends are a tax-advantaged way to invest in stocks and bonds. The dividends are not subject to federal income tax, which can save investors a significant amount of money. However, it is important to note that exempt-interest dividends are not exempt from state and local income taxes.

Here are some examples of exempt-interest dividends:

* Dividends paid by a RIC that invests in stocks and bonds
* Dividends paid by a REIT that invests in real estate
* Dividends paid by a mutual fund that invests in a RIC or REIT

If you are considering investing in a RIC, REIT, or mutual fund that pays exempt-interest dividends, it is important to understand the tax implications. You should consult with a tax advisor to determine if this type of investment is right for you.

Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.

Is this definition wrong? Let us know by posting to the forum and we will correct it.