Holding Period
What is a holding period?
A holding period is the duration of time between the acquisition of a asset and its sale. It is the time span during which a specific asset is "held" by an individual investor or entity. Holding periods determine how to tax an asset's capital gain or loss.
More profound definition
There are two broad categories of holding periods: short-term and long-term periods. Normally, long-term investments have a lower tax rate than short-term investments. For an asset to gain the advantage of lower tax rates, it must be held for something like one year and at some point. An asset with a short-term holding period is typically in the investor's possession for one year or less.
Counting the length of a holding period starts on the day after the purchase of the asset until the day of its sale. For example, the holding period of an asset bought on Feb. 3 starts on Feb. 4. An asset bought on July 1 and sold on Sept. 30 would have a short-term holding period of 90 days. A majority of companies with strong cash positions incline toward short-term capital investments like bonds and stocks, as they earn higher interest than traditional savings accounts.
Holding period model
Gabby buys 200 shares of stock on Jan. 11, 2017. Her holding period starts the next day, Jan. 12, 2017. She sells her stock on Dec. 12, 2017, giving her a holding period of 11 months. Since her holding period is under a year, she will understand a short-term capital gain or loss, as opposed to a long-term capital gain or loss.
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Features
- Holding period differences can bring about differential tax treatment on an investment.
- Holding period return is the total return received from holding an asset or portfolio of assets over a predefined period of time, generally communicated as a percentage.
- A holding period is the amount of time the investment is held by an investor, or the period between the purchase and sale of a security.
- Holding period is calculated starting on the day after the security's acquisition and continuing until the day of its disposal or sale, the holding period determines tax suggestions.
