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Define Holding Periods of Assets

Provide an example and explain what the holding period is for an asset when a sale or disposition occurs

Solution Preview

Not knowing exactly what type of asset you are disposing of, I've prepared a more general description of holding period and then applied it to several categories of assets in various situations.

The holding period for an asset is a term commonly used in investment information (see the four sample definitions below), but it is not limited to investments. Following are general situations, including examples, where the holding period is critical for both tax and financial treatment:

1. When reporting sales of stocks or bonds on Schedule D of an individual's income tax return, the holding period will determine the categorization of the type of capital gain/loss to be taxed - short or long-term. Example: if you bought a stock on January 5, 2007 and sold it on January 2, 2008, you have a short term gain because your holding period was less than one year. Short term gains are taxed at ordinary income rates. Had you waited until January 6, 2008, you would have had a long-term gain taxable at only 40% of the gain.

2. When preparing financial statements, the intent for the holding period of investments will determine the placement (or category) in a ...

Solution Summary

The solution first explains four concepts in accounting and tax where a holding period is critical to the outcome.
Also included are four cited definitions of a holding period from four different sources.

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