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Table 4-2. Holding Period for Different Types of Acquisitions tal gains and losses. Include the following
items.
Type of acquisition: When your holding period starts: • Net section 1231 gain from Part I, Form
4797, after any adjustment for nonrecap-
Stocks and bonds bought on a securities Day after trading date you bought security. Ends on trading date you sold tured section 1231 losses from prior tax
market security. years.
U.S. Treasury notes and bonds If bought at auction, day after notification of bid acceptance. If bought through • Capital gain distributions from regulated in-
subscription, day after subscription was submitted. vestment companies (mutual funds) (RICs)
Nontaxable exchanges Day after date you acquired old property. and real estate investment trusts (REITs).
Gift If your basis is giver's adjusted basis, same day as giver's holding period • Your share of long-term capital gains or
began. If your basis is fair market value, day after date of gift. losses from partnerships, S corporations,
and fiduciaries.
Real property bought Generally, day after date you received title to the property. • Any long-term capital loss carryover.
Real property repossessed Day after date you originally received title to the property, but does not
include time between the original sale and date of repossession. The result from combining these items with
other long-term capital gains and losses is your
Holding period. To figure if you held property Profit-sharing plan. The holding period of net long-term capital gain or loss.
longer than 1 year, start counting on the day fol- common stock withdrawn from a qualified con-
lowing the day you acquired the property. The tributory profit-sharing plan begins on the day Net gain. If the total of your capital gains is
day you disposed of the property is part of your following the day the plan trustee delivered the more than the total of your capital losses, the
holding period. stock to the transfer agent with instructions to difference is taxable. Different tax rates may ap-
reissue the stock in your name. ply to the part that is a net capital gain. See
Example. If you bought an asset on June Capital Gains Tax Rates, later.
15, 2021, you should start counting on June 16, Gift. If you receive a gift of property and
2021. If you sold the asset on June 15, 2022, your basis in it is figured using the donor's ba- Net loss. If the total of your capital losses is
your holding period is not longer than 1 year, sis, your holding period includes the donor's more than the total of your capital gains, the dif-
but if you sold it on June 17, 2022, your holding holding period. For more information on basis, ference is deductible. But there are limits on
period is longer than 1 year. see Pub. 551. how much loss you can deduct and when you
Patent property. If you dispose of patent Real property. To figure how long you held can deduct it. See Treatment of Capital Losses
next.
property, you are considered to have held the real property, start counting on the day after you
property longer than 1 year, no matter how long received title to it or, if earlier, the day after you
took possession of it and assumed the burdens Treatment of Capital Losses
you actually held it. For more information, see
Patents in chapter 2. and privileges of ownership.
However, taking possession of real property If your capital losses are more than your capital
Inherited property. If you inherit property, under an option agreement is not enough to
you are considered to have held the property start the holding period. The holding period gains, you can deduct the difference as a capi-
tal loss deduction even if you do not have ordi-
longer than 1 year, regardless of how long you cannot start until there is an actual contract of nary income to offset it. The yearly limit on the
actually held it. sale. The holding period of the seller cannot amount of the capital loss an individual can de-
end before that time.
Installment sale. The gain from an install- duct is $3,000 ($1,500 if you are married and
ment sale of an asset qualifying for long-term Repossession. If you sell real property but file a separate return).
capital gain treatment in the year of sale contin- keep a security interest in it and then later re-
ues to be long term in later tax years. If it is possess it, your holding period for a later sale Capital loss carryover. Generally, you have a
short term in the year of sale, it continues to be includes the period you held the property before capital loss carryover if either of the following
short term when payments are received in later the original sale, as well as the period after the situations applies to you.
tax years. repossession. Your holding period does not in- • Your net loss is more than the yearly limit.
The date the installment payment is re- clude the time between the original sale and the • Your taxable income is less than zero.
repossession. That is, it does not include the
TIP ceived determines the capital gains period during which the first buyer held the If either of these situations applies to you for
rate that should be applied, not the 2022, see Capital Losses under Reporting Cap-
date the asset was sold under an installment property. ital Gains and Losses in chapter 4 of Pub. 550
contract. Nonbusiness bad debts. Nonbusiness to figure the amount you can carry over to 2023.
bad debts are short-term capital losses. For in-
Nontaxable exchange. If you acquire an formation on nonbusiness bad debts, see chap- Example. You and your spouse sold prop-
asset in exchange for another asset and your ter 4 of Pub. 550. erty in 2022. The sale resulted in a capital loss
basis for the new asset is figured, in whole or in of $7,000. There were no other capital transac-
part, by using your basis in the old property, the Net Gain or Loss tions. On your joint 2022 return, you and your
holding period of the new property includes the spouse can deduct $3,000, the yearly limit. You
holding period of the old property. That is, it be- have taxable income of $2,000. The unused
gins on the same day as your holding period for The totals for short-term capital gains and los- part of the loss, $4,000 ($7,000 − $3,000), is
the old property. ses and the totals for long-term capital gains carried over to 2023.
and losses must be figured separately. If the capital loss had been $2,000, it would
Example. You bought machinery on De- not have been more than the yearly limit. The
cember 4, 2021. On June 4, 2022, you traded Net short-term capital gain or loss. Com- capital loss deduction would have been $2,000.
this machinery for other machinery in a nontax- bine your short-term capital gains and losses, There would be no carryover to 2023.
able exchange. On December 7, 2022, you sold including your share of short-term capital gains
the machinery you got in the exchange. Your or losses from partnerships, S corporations, Short-term and long-term losses. When you
holding period for this machinery began on De- and fiduciaries and any short-term capital loss carry over a loss, it retains its original character
cember 5, 2021. Therefore, you held it longer carryover. Do this by adding all your short-term as either long term or short term. A short-term
than 1 year. capital gains. Then, add all your short-term cap- loss you carry over to the next tax year is added
ital losses. Subtract the lesser total from the to short-term losses occurring in that year. A
Corporate liquidation. The holding period other. The result is your net short-term capital long-term loss you carry over to the next tax
for property you receive in a liquidation gener- gain or loss. year is added to long-term losses occurring in
ally starts on the day after you receive it if gain that year. A long-term capital loss you carry
or loss is recognized. Net long-term capital gain or loss. Follow over to the next year reduces that year's
the same steps to combine your long-term capi- long-term gains before its short-term gains.
Chapter 4 Reporting Gains and Losses Page 35