I have held NRO and another real estate CEF for two years and their distributions are classified as Ordinary Dividends for tax purposes, not interest. Check your 1099-DIV. It is possible that some distributions in any given year may also be cap gains or return of capital, but for 2008 my broker has reported all distributions from NRO as Ordinary Divs. It is also possible that the 1099 will be revised, which has happened often in the last few years.
Just got my 1099 from Fidelity and it shows that all the NRO distributions for 2008 were ordinary dividends, no qualified divs. or capital gains or return of capital. So you will taxed at whatever income level you reside in.
Qualified dividends are the ordinary dividends that are subject to the same 0% or 15% maximum tax rate that applies to net capital gain.
To qualify all of the following requirements must be met.
The dividends must have been paid by a U.S. corporation or a qualified foreign corporation.
You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock will not receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it.