The short-term holding period is one year or less. Short-term capital gains are taxed at ordinary income tax rates.
The long-term holding period is more than one year. Long-term capital gains are taxed at discounted long-term capital gains rates. The long-term tax rate will be either 5% or 15%, depending on your marginal tax bracket.
The holding period is determined from the date you bought your investment until the date you sold your investment.
For example, Mary invests in XYZ stock on January 3, 2007. She sells the stock on January 3, 2008. Mary's holding period for the stock is exactly one year. This is a short-term investment.
Let's change the example slightly. Mary sells the stock on January 4, 2008, instead. Mary's holding period is one year and one day. This is now a long-term investment.
Tax planning for investors focuses on deferring the sale of profitable investments until you qualify for the discounted long-term capital gains tax rate.
