When Does a Stock Become Long Term for Taxes?

A stock becomes long-term for tax purposes once you have held it for more than one year, measured from the day after your purchase trade date through the trade date on which you sell.¹ In practice, that means holding the shares for at least one year and one day. Cross that line and any gain qualifies for the lower long-term capital gains rates, which top out at 20% instead of the 37% that can apply to short-term gains taxed as ordinary income.²

The One-Year-and-a-Day Rule

The statute uses the phrase “more than one year.”¹ Selling on the exact one-year anniversary of your purchase still counts as short-term. You have to wait one additional day.

Say you buy shares on March 15, 2026. The earliest you can sell them and get long-term treatment is March 16, 2027. A sale on March 15, 2027 falls on the wrong side of the line and produces a short-term gain, even by a single day.

How to Count the Days

Your holding period starts the day after the trade date on which you bought the stock and ends on the trade date you sell it.³ The trade date is when your order actually executes, not when money or shares change hands.

A common mistake is counting from the settlement date. Settlement is when the brokerage finalizes delivery of the shares and payment. Since May 2024, most stock trades settle the next business day after the trade, a cycle known as T+1.⁴ That gap of a day or two is easy to overlook until you’re selling right at the anniversary, when counting from the wrong date can push a gain into the wrong bucket. Your brokerage confirmation lists both dates; use the trade date.

The trade date also controls which tax year the sale falls into. If you sell on December 31, 2025, settlement happens in January 2026 and the cash lands then, but the gain or loss belongs on your 2025 return.³

Why the Cutoff Matters

Short-term gains are taxed as ordinary income. For 2026, those rates run from 10% on the first $12,400 of taxable income for single filers to 37% on income above $640,600.⁵

Long-term gains have their own schedule. For 2026, a single filer pays 0% on long-term gains if total taxable income stays at or below $49,450, 15% on the range above that up to $545,500, and 20% above $545,500. Married couples filing jointly pay 0% up to $98,900 and 15% up to $613,700.⁵

The dollar difference can be large. Take a single filer with $100,000 in taxable income and a $50,000 stock gain. Selling one day too early lands that gain in the 24% ordinary income bracket. Waiting one more day drops the rate to 15%, a savings of roughly $4,500 on the same trade.

Net Investment Income Tax

Higher earners face an extra 3.8% surtax on investment income, including 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 for single filers, $250,000 for married filing jointly, or $125,000 for married filing separately.⁶ Those thresholds are set by statute and don’t adjust for inflation. When the surtax applies, the effective top rate on long-term gains rises to 23.8%.

State Taxes

Most states tax capital gains as ordinary income. Nine states have no income tax at all, and a handful offer reduced rates or partial exclusions for long-term holdings. State rates on gains range from 0% to roughly 13%. Factor your state’s rules into any timing decision.

When the Holding Period Isn’t What You Think

Several situations change how the clock is counted or override it entirely.

Gifted Stock

When someone gives you stock, you generally inherit the donor’s holding period along with the shares. If the donor held them for eight years, tax law treats you as having held them for eight years too.⁷ This tacking applies whenever your cost basis carries over from the donor, which is the normal case when the stock has gained value since the donor bought it.⁸

There is an exception. If the stock’s fair market value on the gift date was lower than the donor’s basis, and you later sell at a loss, you use that lower fair market value as your basis for calculating the loss. In that scenario, your holding period does not carry over. It starts fresh the day after you received the gift.³

Inherited Stock

Inherited stock is always long-term, no matter how briefly the person who died held it and no matter how quickly you sell after receiving it.⁹⁷ Inherited shares also get a step-up in basis to the fair market value on the date of death, or an alternate valuation date six months later if the executor elects it.¹⁰ If your parent bought at $10 and the shares were worth $100 on the date of death, your basis becomes $100. Selling at $102 leaves you with a $2 long-term gain per share.

Dividend Reinvestment Plans

Reinvested dividends buy new shares, and each reinvestment starts a fresh one-year clock on that batch.¹¹ A quarterly-paying stock enrolled in a DRIP produces four new lots a year. Your original shares may be long-term while the most recent purchases are only a few months old.

Wash Sales

A wash sale happens when you sell stock at a loss and buy the same or a substantially identical security within 30 days before or after the sale, a 61-day window in total.¹² The loss is disallowed for that year, but the time you held the original shares tacks onto the replacement shares.¹³ If you held the originals ten months, the replacements start with ten months already credited.

Short Sales

Short sales follow different rules that often produce short-term treatment even when you’d expect long-term. If you held substantially identical stock for one year or less at the time of the short sale, or acquired substantially identical stock between the short sale and its closing, any gain is short-term.¹⁴ If you held substantially identical stock for more than a year at the time of the short sale, any loss on closing is forced into long-term status.

Choosing Which Shares to Sell

When you own several lots of the same stock bought on different dates, the lot you sell determines both the holding period and the size of the gain or loss. You have three options for identifying the shares sold.

First-in, first-out (FIFO) is the default at most brokerages. Your oldest shares are treated as sold first, which usually means they’ve cleared the one-year mark.
Specific identification lets you pick exactly which lot to sell. You must tell your broker which shares you’re selling before the settlement date, and the broker must confirm the selection back to you.
Average cost is available for mutual fund shares. Your basis becomes the average across all shares you own, which simplifies recordkeeping but removes the ability to choose favorable lots.

Specific identification is the tool that actually controls the long-term versus short-term split. Bought 100 shares in January 2025 and another 100 in November 2025, and want to sell 100 in February 2026? Identifying the January lot produces a long-term gain; the November lot produces a short-term one. Most brokerages let you pick the specific lot when you place the trade online.

1
Office of the Law Revision Counsel. 26 USC 1222 – Other Terms Relating to Capital Gains and Losses
2
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
3
Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses – Section: Holding Period
4
FINRA. Understanding Settlement Cycles: What Does T+1 Mean for You
5
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
6
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
7
Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
8
Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
9
Internal Revenue Service. Publication 544 (2025), Sales and Other Dispositions of Assets
10
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
11
Internal Revenue Service. Stocks, Options, Splits, Traders
12
Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
13
Internal Revenue Service. Publication 550 (2025), Investment Income and Expenses – Section: Wash Sales
14
Office of the Law Revision Counsel. 26 USC 1233 – Gains and Losses From Short Sales