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Holding period

The length of time an asset is owned, which determines whether a gain is short or long term and whether preferential rates or discounts apply. Concept used in most jurisdictions.

In the United States the boundary is one year: more than a year gives long-term-capital-gain treatment, a year or less gives short-term-capital-gain taxed as ordinary income. The clock starts the day after acquisition and ends on the trade date of the sale.

Several rules suspend or reset it. A wash-sale-rule adjustment carries the old holding period into the replacement shares, straddle-rules suspend it while an offsetting position is open, and a deep in-the-money covered call can suspend it on the underlying.

Other jurisdictions use different thresholds for different purposes, such as the twelve-month test behind the australia-cgt-discount.

This is general information, not tax advice, and the jurisdiction matters. Rules change and depend on your circumstances; confirm with a qualified professional.

Related: long-term-capital-gain, short-term-capital-gain, straddle-rules, australia-cgt-discount, qualified-dividend-holding-period

See it drawn

Original diagrams for the ideas on this page. Illustrative, not real market data.

Payoff of a long straddle at expiryA V shape with its point at the strike and both arms rising through zero as the price moves away.Profit / loss per share08090110120Profit if the move is big enough, in either directionStrike 100Breakeven 92Breakeven 108Max loss 8 — both premiums, if it finishes at 100Underlying price at expiry
Long straddle: payoff at expiry. A 100 call and a 100 put bought together for 8 make a V. A quiet market that ends near 100 costs the whole 8; the position only turns positive once the price finishes below 92 or above 108, whichever way it goes.

Educational only, not advice. Spotted an error? Post in Site Feedback.