What is the holding period?

The holding period is the time between an investor’s acquisition and sale of securities. The holding period is the interval between buying and selling an asset in an extended position. The holding period in a short options position is the interval between a short seller buying back stocks and the lender receiving them to conclude the short position.

Basics

The taxation of capital gains or losses depends on the holding duration of an investment. Long-term holding is one year or more extended without expiration. Any assets held for less than a year are short-term holdings. The account will hold dividends for a while.

Holding period return is the overall return on an asset or portfolio over a specific period, typically represented as a percentage. The holding period return is the sum of asset or portfolio returns (income plus value changes). Comparing returns from different investments over time is very important.

Calculating the holding period

Tax effects depend on the security’s holding period, from acquisition to disposal or sale. On January 2, 2016, Sarah acquired 100 stock shares. She counts from January 3, 2016, to determine her holding period. The third day of each month after then counts as a new month, regardless of its length.

If Sarah sold her shares on December 23, 2016, she would experience a short-term capital gain or loss due to her holding period being shorter than one year. Because of her extended holding period, she would make a long-term capital gain or loss if she sold her shares on January 3, 2017.

The formula for holding period returns is:

Holding Period Return = {Income + (EOPV – IV)} / IV.

EOPV=end of period value

IV = initial value​

Differences in Holding Period Rules

Use the donor’s basis to determine the recipient’s cost basis for a gift of appreciated stock or security. The recipient’s period includes the duration of the donor’s holding period. “Tacking on” means adding” a value to “the donor’s holding time by the donor’s receiver. The holding period begins the day following receipt if the recipient’s basis is the recipient’s security’s fair market value, such as a depreciated stock gift.

After this holding time, the IRS considers an investment a long-term gain (or loss). We tax long-term capital gains more favorably than short-term gains.

The holding period for new shares or sections of a new share is the same as for existing shares when an investor gets a stock dividend. The minimum holding duration is the main criterion for qualifying dividends. Joint stock holdings must exceed 60 days for 120 days, starting 60 days before the ex-dividend date. A 90-day holding period is required for preferred shares during the 180 days starting 90 days before the ex-dividend date.

Holding also applies to fresh equity in a spinoff firm from which the investor bought stock. April 2015 saw Paul buy 100 stock shares. The corporation announced a two-for-one stock split in June 2016. After buying 200 firm shares in April 2015, Paul held them for the same duration.

Conclusion

• The holding period refers to the time between an investor’s acquisition investors of securities.
• Tax effects depend on the holding period, which begins on the security’s acquisition security’sn i its disposal or sale.
• The holding period return is the overall return on an asset or portfolio over a specific time, usually stated as a percentage.
• Investment tax treatment might vary by holding time.