5.10 Holding Period for Securities

Rules for counting your holding period for various securities transactions are as follows:

Planning Reminder

Long-Term Holding Period of More Than a Year

To obtain the benefit of favorable long-term capital gains rates (5.3), you must hold an asset more than a year before selling it.

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Stock sold on a public exchange.

The holding period starts on the day after your purchase order is executed (trade date). The day your sale order is executed (trade date) is the last day of the holding period, even if delivery and payment are not made until several days after the actual sale (settlement date).

Stock subscriptions.

If you are bound by your subscription but the corporation is not, the holding period begins the day after the date on which the stock is issued. If both you and the company are bound, the date the subscription is accepted by the corporation is the date of acquisition, and your holding period begins the day after.

Tax-free stock rights.

When you exercise rights to acquire corporate stock from the issuing corporation, your holding period for the stock begins on the day of exercise, not on the day after. You are deemed to exercise stock rights when you assent to the terms of the rights in the manner requested or authorized by the corporation. An option to acquire stock is not a stock right.

FIFO method for stock sold from different lots.

If you purchased shares of the same stock on different dates and cannot determine which shares you are selling, the shares purchased at the earliest time are considered the stock sold first; this is called the FIFO (first-in, first-out) method (30.2).

Commodities.

If you acquired a commodity futures contract, the holding period of a commodity accepted in satisfaction of the contract includes your holding period of the contract, unless you are a dealer in commodities.

Employee stock options.

When an employee exercises a stock option, the holding period of the acquired stock begins on the day after the option is exercised. If an employee option plan allows the exercise of an option by giving notes, the terms of the plan should be reviewed to determine when ownership rights to the stock are transferred. The terms may affect the start of the holding period for the stock.

Wash sales.

After a wash sale, the holding period of the new stock includes the holding period of the old stock for which a loss has been disallowed (30.6).

Other references.

For the holding period of stock dividends, see 30.3; for short sales, see 30.5; and for convertible securities, see 30.7.