What Is a Holding Period?

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. In a long position, the holding period refers to the time between an asset's purchase and its sale. In a short options position, the holding period is the time between when a short seller buys back the securities and when the security is delivered to the lender to close the short position.

Understanding the Holding Period

The holding period of an investment is used to determine the taxing of capital gains or losses. A long-term holding period is one year or more with no expiration. Any investments that have a holding of les𒉰s than one year will be shor๊t-term holds. The payment of dividends into an account will also have a holding period.

澳洲幸运5官方开奖结果体彩网:Holding period return is thus the 澳洲幸运5官方开奖结果体彩网:total return received from holding an asset or 澳洲幸运5官方开奖结果体彩网:portfolio of assets over a specified period of time, generally expressed as a percentage. Holding period return is calculated on the basis of total returns from the asset or portfolio (income plus changes in value). It is particularly usefulꦺ 💛for comparing returns between investments held for different periods of time.

How to Calculate a Holding Period

Starting on the day after the security's acquisition and continuing until the day of its disposal or sale, the holding period determines tax implications. For example, Sarah bought 100 shares of stock on Jan. 2, 2016. When determining her holding period, she begiಞns counting on Jan. 3, 2016. The third day of each month after that counts as the start of a new month, regardless of how many days each month contains.

If Sarah sold her stock on Dec. 23, 2016, she would realize a short-term capital gain or 澳洲幸运5官方开奖结果体彩网:capital loss because her holdin🃏g period is less than one year. If she sells her stock on Jan. 3, 2017, she would realize a long-term capital gain or loss because her hold﷽ing period is more than one year.

Holding period return can therefore be repres⛄ented by tღhe following formula:

$\begin{aligned} &\text{Holding Period Return} = \frac { \text{Income} + ( \text{EOPV} - \text{IV} ) }{ \text{IV} } \\ &\textbf{where:} \\ &\text{EOPV} = \text{end of period value} \\ &\text{IV} = \text{initial value} \\ \end{aligned}$​Holding Period Return=IVIncome+(EOPV−IV)​where:EOPV=end of period valueIV=initial value​

Rules for Holding Periods

When receiving a gift of appreciated stock or other security, the determination of the recipient’s 澳洲幸运5官方开奖结果体彩网:cost basis is by using the donor’s basis. Also, the recipient’s holding period includes the length of the do🍷nor’s holding periodꩲ. This continuation of holding is called “tacking on” because the recipient’s holding period adds value to the donor’s holding period. In cases where the recipient’s basis is determined by the fair market value of the security, such as a gift of stock that decreased in value, the recipient’s holding period starts on the day after receiving the gift.

The holding period for stock you received as a taxable stock dividend begins on the date of distribution. On the other hand, 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. Meeting the minimum holding period is the primary requirement for dividends to be designated as qualified. For common stock, the holding must exceed 60 days throughout the 120-day period, which begins 60 days before the ex-dividend date. Preferred stock must have a holding period of at least 90 days during the 180-day period that begins 90 days before the stock's ex-dividend date.

Holding also applies when receiving new stock in a company spun off from the original company in which the investor purchased stock. For example, Paul purchased 100 shares of stock in April 2023. In June 2024, the company declared a two-for-one 澳洲幸运5官方开奖结果体彩网:stock split. Paul then had 200 shares of company stoc🐎k with the same holding period, starting with the date of purchase in April 2023.

The Bottom Line

In finance, the holding time or holding period is the length of time an investor can hold a security before selling or disposing of it. Depending on the asset, there are different prescribed holding times for an investor to make the best use of existing regulations.