What is a Holding Period?
Holding period refers to the time during which an investor holds a given security.
How Does a Holding Period Work?
The holding period for a security is defined as the elapsed time between the initial date of purchase and the date on which the security was sold. A short-term holding period is defined as less than one year while a long-term holding period is defined as one year plus one day and beyond.
To illustrate, the holding period for a security purchased on January 1, 2009 and sold on June 30, 2009 would be six months (short-term), while the holding period for an item purchased on January 1, 2009 and sold on January 31, 2010 would be 13 months, or one year and one month (long-term).
Why Does a Holding Period Matter?
The duration of a holding period is important for the purpose of calculating capital gains, as gains on long-term holdings are taxed differently than gains on short-term holdings.