One costly mistake you don’t ever want to make with an investment move is ending up with short term capital gains tax instead of long term capital gains. The difference of 1 day can cost you a great deal of money.
Short Term Capital Gains
Generally speaking, short term capital gains occur when you have an investment that you have held for less than 1 year. For example if you bought a house or stock on May 1, 2024 and sold it BEFORE May 2, 2025, you are subject to short term capital gains.
The short term capital gains rate is taxed at your ordinary income rate.
Long Term Capital Gains
If you want to get the benefits of more favorable long term capital gains then you need to be sure you hold that investment for 1 years + 1 day. The IRS publication here provides an example.
If you bought investment property on January 31, 2023, and sold it on January 29, 2024, your holding period is not more than 1 year and you have a short-term capital gain or loss. If you sold it on February 6, 2024, your holding period is more than 1 year and you have a long-term capital gain or loss.
The same holds true if you sold on January 31, 2024 because that’s not more than 1 year, it is one year exactly.
If you want to know what the long term capital gains rates are you can review this link here that explains both.
Portfolio Impacts
Every year I need to closely monitor dates on transactions in my portfolio. This include company RSU stock on when the shares are granted and released, stocks and bonds that I own and eventually real estate but I have now owned rental properties far beyond the 12 month time window so that’s not really an issue.
Share The Wealth
Have you gotten burned by selling too early? Let me know in the comments below.