When Does a Stock Become Long Term for Capital Gains?

A stock becomes long-term for capital gains purposes once you have held it for more than one year — at minimum, one year and one day from the day after you bought it. Selling on the exact one-year anniversary still counts as short-term. That single day matters because long-term gains are taxed at preferential federal rates of 0%, 15%, or 20%, while short-term gains are taxed as ordinary income at rates that reach 37% in 2026.¹²

How to Count the Holding Period

Your holding period starts the day after you buy the stock and includes the day you sell. The trade date controls, not the settlement date. Even though stock trades typically settle a business day or two after execution, those settlement days do not shift the clock in either direction.²

Counting runs by calendar month, not by days. Each new month of ownership begins on the same calendar date as the original purchase. Buy on March 15, and month one ends on April 15, month two on May 15, and so on. Buy on June 1, 2025, and the earliest date you can sell for long-term treatment is June 2, 2026.

When the Clock Doesn’t Start on Purchase Day

Several common events either move the starting date forward, backward, or eliminate the waiting period entirely.

Stock Splits and Tax-Free Reorganizations

Additional shares you receive through a stock split, tax-free merger, or similar reorganization inherit the holding period of your original shares. Federal law ties this to basis: whenever the basis of the new shares carries over from the shares you gave up, the holding period tacks on as well.³ A two-for-one split does not restart the clock on any of your shares.

Dividend Reinvestment Plans

Shares acquired through a dividend reinvestment plan are treated differently. Each automatic reinvestment is a separate purchase with its own acquisition date and cost basis. If you have owned 100 shares of a company for three years but reinvested a dividend last month into five additional shares, those five shares have a holding period of about one month, not three years. When you sell part of your position, knowing which lots are long-term and which are still short-term controls the tax outcome.

Gifted Shares

When someone gives you stock, you generally take on the donor’s original cost basis and their holding period. If the donor bought the shares two years ago and hands them to you today, the stock is already long-term in your hands. If the donor held for only four months before gifting, you need to hold for another eight months and a day before crossing the threshold.³

Inherited Shares

Inherited stock is automatically long-term, no matter how briefly the deceased person or you held the shares. Federal law states that if you acquire property from a decedent and sell it within one year of the date of death, you are considered to have held it for more than one year.³ Report the sale in Part II (the long-term section) of Form 8949.⁴ Inherited shares also receive a stepped-up cost basis equal to the fair market value on the date of death, so you owe tax only on appreciation above that figure.⁵

Wash Sales

A wash sale happens when you sell stock at a loss and buy substantially identical shares within 30 days before or after the sale. The IRS disallows the loss deduction, and the disallowed amount is added to the cost basis of the replacement shares.⁶ The replacement shares also absorb the holding period of the shares you sold. If you held the original shares for ten months before the wash sale, the replacement shares start with ten months already credited.⁷

Short Sales Against Your Long Position

Opening a short sale of substantially identical shares can reset or freeze the holding period on your long position. If you have held the stock for one year or less when you open the short position, any gain on closing the short is treated as short-term, and the holding period on your long position starts over from the date you close the short. If you have held the stock for more than one year when you open the short, any loss on closing the short sale is treated as long-term regardless of how quickly you close it.

What the Long-Term Rates Look Like

Once your stock qualifies as long-term, the profit is taxed at 0%, 15%, or 20% based on your taxable income. The 2026 inflation-adjusted thresholds are:⁸

0% rate: taxable income up to $49,450 (single or married filing separately), $98,900 (married filing jointly), or $66,200 (head of household).
15% rate: taxable income above the 0% ceiling up to $545,500 (single), $306,850 (married filing separately), $613,700 (married filing jointly), or $579,600 (head of household).
20% rate: taxable income above the 15% ceiling.

Short-term gains have no preferential rate. They are added to your wages and other earnings and taxed at your marginal ordinary-income rate, which tops out at 37% in 2026.⁹ On a $50,000 profit, the gap between 15% long-term and 37% short-term is $11,000 in federal tax.

High-income investors may also owe the 3.8% net investment income tax on capital gains. It applies to the lesser of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately). These thresholds are not indexed for inflation.¹⁰ For top-bracket taxpayers, the combined federal rate on long-term gains reaches 23.8%.

Reporting the Sale

Your broker reports each sale to you and to the IRS on Form 1099-B. You report the transactions on Form 8949, which separates short-term sales in Part I from long-term sales in Part II. The totals flow to Schedule D of your Form 1040.¹¹

Misclassifying a short-term gain as long-term, or reporting an incorrect basis, can trigger an accuracy-related penalty of 20% of the tax underpayment, plus interest from the original due date.¹² Keep trade confirmations, record the acquisition date for each tax lot (especially DRIP shares and gifted stock), and reconcile your records against the 1099-B before you file.

1
Office of the Law Revision Counsel. 26 U.S. Code 1222 – Other Terms Relating to Capital Gains and Losses
2
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
3
Office of the Law Revision Counsel. 26 U.S. Code 1223 – Holding Period of Property
4
Internal Revenue Service. Instructions for Form 8949 (2025)
5
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
6
Office of the Law Revision Counsel. 26 U.S. Code 1091 – Loss From Wash Sales of Stock or Securities
7
Investor.gov. Wash Sales
8
Internal Revenue Service. Revenue Procedure 2025-32, 2026 Adjusted Items
9
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
10
Internal Revenue Service. Net Investment Income Tax
11
Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets
12
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments