As with most tax cuts, the dividend-tax cut brought good news for a lot of people and confusion to virtually everyone.

This recent cut seems deceptively simple: Dividends are taxed at 15%, 5% if you're in the bottom brackets. But if you remember nothing else, remember that nothing in the tax code is ever that straightforward, and exceptions abound. (All dividends not eligible for the 15% rate will be taxed at the investor's ordinary income tax rate -- which could be 25%, 28%, 33% or 35%.) So for those of you a bit befuddled over the do's and don'ts, today's Financial Education column offers a roundup of what investors in dividend-paying securities need to know come tax time.

Borrowed Stock

Neither a borrower nor a lender be -- at least, not if you want to be eligible for the reduced tax rate on dividends. Dividends on borrowed stock will not be eligible for the reduced rate, and you're also out of luck if you're lending the stock. Also, substitute payments to stock lenders from stock borrowers (short-sellers) in lieu of a dividend, with respect to stock on loan in a short sale, will also not be eligible. In other words, lenders will not be eligible for the reduced rate because they're not actually getting the dividend. Instead they're getting a payment that's equal to the dividend from the investor who has borrowed the stock.

Borrowed Funds

If the investor is claiming an interest deduction for the loan, the dividends on stock purchased with borrowed funds will not be eligible for the lower rate. But taxpayers can "double-dip" on stock purchased with borrowed money and take an interest deduction for the investment loan if they have investment income from other sources.

So if a taxpayer has income from bonds, REITs or dividends that aren't eligible for the reduced rate, the IRS will allow a deduction in the amount of that income, and permit the taxpayer to apply the reduced tax rate on dividends that do qualify. The amount of the investment interest deduction is limited to net investment income. If the interest on an investment loan exceeds net income for that year, taxpayers can carry over the remainder of the deduction to use in future years.

Holding Period

Typically, investors in dividend-paying stocks must hold the stock until a specified date in order to receive the upcoming dividend payment. Now, under the new tax law, you must hold the stock for more than 60 days during the 120-day period that begins 60 days before the ex-dividend date (the first trading day after the eligibility date). If you, or a fund manager, own the stock for 60 days or less during the two months before and after the ex-dividend date, all dividends will constitute ordinary income and be taxed at your regular rate.

Real Estate Investment Trusts (REITs)

By definition, REITs do not pay corporate tax on their profits, and they must pass on 90% of their net earnings to investors as dividends. Because of this structure, though, REIT investors will not be eligible for the 15% tax rate on REIT dividends. Instead, this income will continue to be taxed at the ordinary income tax rate.

But of course, there are a few exceptions. If the REIT pays a tax on all or part of its profits, its dividend (or a pro-rated portion of it) will be eligible for the 15% rate once it's distributed to investors. Also, if the REIT has taxable subsidiaries that contribute to the dividend payout, that portion will be eligible for the 15% rate as well. And if any part of the REIT dividend is attributable to capital gains the REIT incurred, that portion will be eligible for the 15% tax.

Foreign Stocks

Generally, if a foreign stock is traded as an ADR on a U.S. exchange, it will be eligible for the 15% dividend-tax rate. The reduced rate, though, will not apply to dividends paid by foreign investment companies, passive foreign investment companies or foreign holding companies. But some investors in non-ADR foreign stocks may still qualify for the 15% rate. Foreign companies based in U.S. territories (such as Puerto Rico or Guam) will be eligible, as will companies based in countries with favorable tax treaties with the U.S.

Investors in foreign stock mutual funds will receive an accounting from the fund company of which portion of their fund's dividend payments are subject to the 15% rate and which will still be subject to their ordinary income tax rate.

Also, if an investor pays foreign tax on the dividends received (unlikely if it's from an ADR) and subsequently receives a foreign tax credit for the amount of tax paid, the amount of credit allowed will be adjusted to reflect the new U.S. rates.

Retirement Plans

And don't forget that all stocks and funds, even dividend-paying ones, held in tax-advantaged accounts are ineligible for the reduced rate. Because you avoided tax on the money you contributed to such plans and then enjoyed the benefit of tax-deferred compounding, you don't get any additional tax breaks now. Instead, all your withdrawals from a 401(k) plan, a rollover IRA or a traditional deductible IRA will be taxed at your ordinary income tax rate.