What Is the Holding Period?

Long-term gains (on property held more than one year) are taxed at a special lower rate, generally at no more than 15 percent (20 percent for higher-income taxpayers); gains on property held for one year or less are taxed at your ordinary income tax rate, which may be as high as 39.6 percent in 2014. Short-term gains are reported in Part I of Schedule D, and long-term gains are reported in Part II. (Remember: These transactions are first itemized on Form 8949 and then the totals are transferred to Schedule D.)

Save Money When counting the days that you held the property, the holding period begins on the day after you bought the property, or the day after the trade date for stocks and other securities sold in an established market. This can be a trap for the unwary -- avoid selling investments exactly one year after you bought them, or you'll end up with short-term, not long-term, gain.

If you acquired property in a nontaxable trade, your holding period for the property will begin on the day following the date you acquired the original property that you gave up in the trade.

If you received property by gift and your basis is determined by your donor's basis, your holding period begins when the donor acquired the property. If you must use the FMV at the time of the gift as your basis, your holding period begins when you received the gift.

If you received the property by bequest or inheritance, your holding period is always considered "long term" and you will get the benefit of the lower tax rate on capital gains even if you sell the property the day after you receive it.

Warning If you disposed of property that you acquired by inheritance from someone who died either before or after 2010, then you report the gain or (loss) on line 3 and enter "INHERITED" in column (c) instead of the date you acquired that property. If you inherited the property from someone who died in 2010 and the executor of the decedent's estate made the election to file Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent, enter "INH-2010" and consult IRS Publication 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010. Ideally, you should be working with a tax professional if you are in this situation.

If you sell stock that you acquired as part of a spin-off or stock dividend, your holding period begins on the same date as the original investment.

There are additional rules and options if you made multiple purchases of a stock or mutual fund on different days, particularly if you sell only part of your investment.

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