What is Your Holding Period?

Your holding period is important because it can affect the amount of taxes you pay on the gain from a sale or exchange of a capital asset. Lower capital gain rates apply to long-term capital gains (assets held over one year).

On the other hand, ordinary income tax rates apply to short-term capital gains (assets held one year or less). Ordinary income tax rates are the regular tax rates applied to ordinary income such as, wages, self-employment income, and interest.

Tip: If your ordinary tax rate is lower than the capital gain rate, the lower rate applies.

The date your holding period begins depends on:

  • When you acquired property, and
  • How you acquired property (e.g., gift, inheritance).

How to Determine Your Holding Period

You figure a holding period in months and fractions of months. A holding month generally begins on the day after the asset was acquired. For example, if you acquired an asset on May 7, the holding month begins on May 8. Succeeding holding months for that asset begin on the same numerical date. For example, June 8, July 8, August 8, September 8, and so on.

Notice that the number of days in a preceding month does not affect the numerical beginning date (the 8th) used in a succeeding month.

Generally, you use the same numerical date on which you acquired an asset as the numerical date ending a holding month in each succeeding month.

For example, if you acquired an asset on May 7, the holding month would begin May 8, (one day later). However, the numerical date ending a holding month in each succeeding month would be June 7, July 7, August 7, September 7, and so on, the same numerical date you acquired the asset.

Notice that the number of days in a preceding month does not affect the numerical date ending a holding month.

Acquiring an Asset on the Last Day of a Month

If you acquire an asset on the last day of a month, a holding month ends on the last day of the following month, regardless of the number of days in each month. For example, if you acquire an asset on November 30, the holding months end December 31, January 31, February 28 (or 29 in a leap year), and so on.

File your personal and small business taxes (Schedule C)