Holding Period: Investment Taxes (2025 IRS Guide)

This guide covers “Holding Period” within investment taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 550 (2025), Investment Income and Expenses, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Holding Period

If you sold or traded investment property, you must determine your holding period for the property. Your holding period determines whether any capital gain or loss was a short-term or a long-term capital gain or loss.

Long-term or Short-term.

If you hold investment property more than 1 year, any capital gain or loss is a long-term capital gain or loss. If you hold the property 1 year or less, any capital gain or loss is a short-term capital gain or loss.

To determine how long you held the investment property, begin counting on the date after the day you acquired the property. The day you disposed of the property is part of your holding period.

Example.

If you bought investment property on January 31, 2024, and sold it on January 29, 2025, your holding period is not more than 1 year and you have a short-term capital gain or loss. If you sold it on February 6, 2025, your holding period is more than 1 year and you have a long-term capital gain or loss.

Holding period and digital assets.

A digital asset is treated as property, and general tax principles that apply to property transactions apply to transactions using digital assets, including how to figure your holding period for short-term and long-term capital gains and losses explained earlier under Long-Term or Short-Term. Digital assets include property that has been referred to as “convertible virtual currency,” “cryptocurrency,” and “non-fungible tokens.”

If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes. For more information on the tax treatment of digital assets, see Notice 2014-21, 2014-16 I.R.B. 938, available at IRS.gov/irb/ 2014-16 IRB#NOT-2014-21, (as modified by Notice 2023-34, 2023-19 I.R.B. 837, available at IRS.gov/irb/2023-19 IRB#NOT-2023-34). For more information on virtual currency transactions, see IRS.gov/VirtualCurrencyFAQs, Instructions for Form 1040, or go to IRS.gov/DigitalAsset.

Securities traded on an established market.

For securities traded on an established securities market, your holding period begins the day after the trade date you bought the securities, and ends on the trade date you sold them.

Caution:

Do not confuse the trade date with the settlement date. The settlement date is the date by which the stock must be delivered and payment must be made.

Example.

You are a cash method, calendar year taxpayer. You sold stock on December 31, 2025. According to the rules of the stock exchange, the sale was closed by delivery of the stock and payment of the sale price in January 2026. You received payment of the sale price on that same day. Report your gain or loss on your 2025 return, even though you received the payment in 2026. The gain or loss is long-term or short-term depending on whether you held the stock more than 1 year. Your holding period ended on December 31.

U.S. Treasury notes and bonds.

The holding period of U.S. Treasury notes and bonds sold at auction on the basis of yield starts the day after the Secretary of the Treasury, through news releases, gives notification of acceptance to successful bidders. The holding period of U.S. Treasury notes and bonds sold through an offering on a subscription basis at a specified yield starts the day after the subscription is submitted.

Automatic investment service.

In determining your holding period for shares bought by the bank or other agent, full shares are considered bought first and any fractional shares are considered bought last. Your holding period starts on the day after the bank's purchase date. If a share was bought over more than one purchase date, your holding period for that share is a split holding period. A part of the share is considered to have been bought on each date that stock was bought by the bank with the proceeds of available funds.

Nontaxable trades.

If you acquire investment property in a trade for other investment property and your basis for the new property is determined, in whole or in part, by your basis in the old property, your holding period for the new property begins on the day following the date you acquired the old property.

Property received as a gift.

If you receive a gift of property and your basis is determined by the donor's adjusted basis, your holding period is considered to have started on the same day the donor's holding period started.

If your basis is determined by the fair market value of the property, your holding period starts on the day after the date of the gift.

Digital assets received as a gift.

Your basis in virtual currency received as a bona fide gift differs depending on whether you will have a gain or a loss when you sell or dispose of it. For purposes of determining whether you have a gain, your basis is equal to the donor's basis, plus any gift tax the donor paid on the gift. For purposes of determining whether you have a loss, your basis is equal to the lesser of the donor's basis or the fair market value of the virtual currency at the time you received the gift. If you do not have any documentation to substantiate the donor's basis, then your basis is zero. For more information on basis of property received as a gift, see Pub. 551.

Holding period of digital assets received as a gift.

Your holding period in virtual currency received as a gift includes the time that the virtual currency was held by the person from whom you received the gift. However, if you do not have documentation substantiating that person's holding period, then your holding period begins the day after you receive the gift. For more information on holding periods, see Pub. 544.

Inherited property.

If you inherited property from someone who died before or after 2010, or from someone who died in 2010 and the executor of the decedent’s estate did not elect to file Form 8939, your capital gain or loss on any later disposition of that property is treated as long-term gain or loss, regardless of how long you held the property. If you acquired the property from someone who died in 2010 and the executor made the election to file Form 8939, see Revenue Procedure 2011-41 to determine your holding period. Revenue Procedure 2011-41 is available at IRS.gov/irb/2011-35_IRB#RP-2011-41. For additional information on the executor making the election, see also Notice 2011-66, 2011-35 I.R.B. 184, available at IRS.gov/irb/2011-35_IRB#NOT-2011-66.

Real property bought.

To figure how long you have held real property bought under an unconditional contract, begin counting on the day after you received title to it or on the day after you took possession of it and assumed the burdens and privileges of ownership, whichever happened first. However, taking delivery or possession of real property under an option agreement is not enough to start the holding period. The holding period cannot start until there is an actual contract of sale. The holding period of the seller cannot end before that time.

Real property repossessed.

If you sell real property but keep a security interest in it, and then later repossess the property under the terms of the sales contract, your holding period for a later sale includes the period you held the property before the original sale as well as the period after the repossession. Your holding period does not include the time between the original sale and the repossession. That is, it does not include the period during which the first buyer held the property. However, the holding period for any improvements made by the first buyer begins at the time of repossession.

Stock dividends.

The holding period for stock you received as a taxable stock dividend begins on the date of distribution.

The holding period for new stock you received as a nontaxable stock dividend begins on the same day as the holding period of the old stock. This rule also applies to stock acquired in a spin-off, which is a distribution of stock or securities in a controlled corporation.

Nontaxable stock rights.

Your holding period for nontaxable stock rights includes the holding period of the underlying stock. The holding period for stock acquired through the exercise of stock rights begins on the date the right was exercised.

Section 1256 contracts.

Gains or losses on section 1256 contracts open at the end of the year, or terminated during the year, are treated as 60% long-term and 40% short-term, regardless of how long the contracts were held. See Section 1256 Contracts Marked to Market, earlier.

Option exercised.

Your holding period for property you acquire when you exercise an option begins the day after you exercise the option.

Wash sales.

Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities.

Qualified small business stock.

Your holding period for stock you acquired in a tax-free rollover of gain from a sale of qualified small business stock, described later under Gains on Qualified Small Business Stock, includes the period you held the old stock.

Commodity futures.

Your holding period for a commodity received in satisfaction of a commodity futures contract, other than a regulated futures contract subject to Internal Revenue Code section 1256, includes your holding period for the futures contract if you held the contract as a capital asset.

Securities futures contract.

Your holding period for a security received in satisfaction of a securities futures contract, other than one that is a section 1256 contract, includes your holding period for the futures contract if you held the contract as a capital asset.

Your holding period for a security received in satisfaction of a securities futures contract to sell, other than one that is a section 1256 contract, is determined by the rules that apply to short sales, discussed later under Short Sales.

Loss on mutual fund or REIT stock held 6 months or less.

If you hold stock in a mutual fund (or other regulated investment company) or REIT for 6 months or less and then sell it at a loss (other than under a periodic liquidation plan), special rules may apply.

Capital gain distributions received.

The loss (after reduction for any exempt-interest dividends you received, as explained later) is treated as a long-term capital loss up to the total of any capital gain distributions you received and your share of any undistributed capital gains. Any remaining loss is short-term capital loss.

Reinvested distributions.

If your dividends and capital gain distributions are reinvested in new shares, the holding period of each new share begins the day after that share was purchased. Therefore, if you sell both the new shares and the original shares, you might have both short-term and long-term gains and losses.

Example.

On April 3, 2025, you bought a mutual fund share for $20. On June 17, 2025, the mutual fund paid a capital gain distribution of $2 per share, which is taxed as a long-term capital gain. On July 15, 2025, you sold the share for $17.50. If it were not for the capital gain distribution, your loss would be a short-term loss of $2.50 ($20 − $17.50). However, the part of the loss that is not more than the capital gain distribution ($2) must be reported as a long-term capital loss. The remaining $0.50 of the loss can be reported as a short-term capital loss.

Exempt-interest dividends on mutual fund stock.

If you received exempt-interest dividends on the stock, at least part of your loss is disallowed. You can deduct only the amount of loss that is more than the exempt-interest dividends. Report the loss as a short-term capital loss. On Form 8949, Part I, line 1, column (d), increase the sales price by the amount of exempt-interest dividends, but do not increase it to more than the cost or other basis shown in column (e).

Example.

On January 10, 2025, you bought a mutual fund share for $40. On February 7, 2025, the mutual fund paid a $5 dividend from tax-exempt interest, which is not taxable to you. On February 14, 2025, you sold the share for $34. If it were not for the tax-exempt dividend, your loss would be $6 ($40 − $34). However, you must increase the sales price from $34 to $39 (to account for the $5 portion of the loss that is not deductible). You can deduct only $1 as a short-term capital loss.

Loss on stock that paid qualified dividends.

Any loss on the sale or trade of stock must be treated as a long-term capital loss to the extent you received, from that stock, qualified dividends (defined in chapter 1) that are extraordinary dividends. This is true regardless of how long you actually held the stock. Generally, an extraordinary dividend is a dividend that equals or exceeds 10% (5% in the case of preferred stock) of your adjusted basis in the stock.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 550 (2025), Investment Income and Expenses: Sales and Trades of Investment Property — Capital Gains and Losses — Holding Period — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.