Hi Sonki:
I'm posting a response to Judy from the idea thread from just over a week ago. You accurately answered her tax question but I wanted to confirm it in the code. Also, posting the holding period rules on a tax thread may help out others.
If one excercises leaps (a leap is the same in the code) to buy shares, for tax purposes is the purchase date the option puchase date or the exercise date.
HOLDING PERIOD FOR CAPITAL ASSETS
In determining whether proceeds from a sale or exchange of a capital asset are classified as long-term or short-term, the length of time the assets are held is the critical factor. The determination also is important in classifying assets under IRC section 1231. The rule is that if a taxpayer holds a capital asset for one year or less, the taxpayer realizes short-term capital gain or loss on the sale of the asset. (IRC section 1221(1) and (2)) If the taxpayer holds a capital asset for more than one year, the taxpayer realizes long-term gain or loss. (IRC section 1221(3) and (4))
In determining how long an asset has been held, the taxpayer begins the "countdown" on the day after the property was acquired and the same date of each following month is the beginning of a new month, regardless of the number of days in the preceding month. For example, if property was acquired on November 1, 1998, the holding period begins on November 2, 1998, and as of November 2, 1999, the holding period is more than one year. The holding period includes the day an asset is disposed of.
Determining holding period.
Following are special rules that apply to determine holding periods.
Property acquired by gift or transfer in trust.
The holding period includes the time the property is held by both the donor and donee, if the donee is required to use as his basis the basis of the donor. (IRC section 1223(2))
Property acquired from a decedent.
The holding period of property acquired from a decedent begins with the date of death. The long-term holding period is considered to have been met even if the property is sold or disposed of within a year of the decedent's death, if the person selling the property has a basis that is determined under IRC section 1014. (IRC section 1223(11))
Property acquired in an exchange.
If property is received in a tax-free exchange, the holding period of the property received in the exchange begins with the date of the taxpayer's acquisition of the property surrendered in the exchange. (IRC section 1223(1)) The rule is applicable to property received in a tax-free exchange only if the property given in exchange was also a capital asset or IRC section 1231 property used in the trade or business at the time of the exchange.
Stocks and securities.
The holding period begins on the day following the day of purchase (the trade date), not on the day when payment is made or delivery is accepted (settlement date). It ends on and includes the date of sale, not the day when payment is received and delivery made. (See Rev. Rul. 93-84, 1993-2 C.B. 225.)
When there is a purchase option, the holding period begins on the day after the option is exercised.
Involuntary conversion.
The holding period includes the holding period of the property converted, provided the basis of the new property is determined by reference to the basis of the old. (IRC section 1223(1)(A)) |
