TQQQ Tax Treatment

Question

I understand that dividends from TQQQ are not qualified. As such, they will be fully taxable. I consider this to be a negative for TQQQ. For comparison purposes, they would be qualified if the investor had bought QQQ instead. Please correct me if you think I am wrong about this.

Now if an investor buys shares in TQQQ and keeps them for 15 months and then sells them. This is done in a taxable account. For tax purposes, would this be taxable the same way that a long term gain in QQQ would be taxable? That is, for a middle income tax payer the tax rate would be 15%.

Answer 1

If an investor buys shares in TQQQ and keeps them for 15 months and then sells them. This is done in a taxable account. For tax purposes, would this be taxable the same way that a long term gain in QQQ would be taxable?

Yes, absolutely. Why on Earth would someone do that (hold TQQQ position for 15 months) is beyond me, but when you liquidate it your gain (or, more likely, loss) will be long term.

That has absolutely nothing to do with dividends.

TQQQ is leveraged, so it probably doesn't hold shares and doesn't pay dividends. There might be distributions in lieu, but these are indeed never qualified for preferential tax treatment.

Answer 2

Dividends are never long-term gains; even if you reinvest them they are taxed as income.

Yes, picking your equities allows you to trade this off to some extent, which is part of why there has been an excessive rush to stocks which emphasize growing value rather than paying dividends. Unfortunately that creates perverse incentives for the company and is probably not a good trend overall, but that hasn't stopped people yet