Investment Company and. Variable Contracts Products Principals (Series 26) Practice Exam

What is the holding period for a short-term capital gain?

1. 6 months or less

2. 1 year or less

3. 2 years or less

4. 3 years or less

The correct answer is: 1 year or less

A short-term capital gain arises when an asset is held for one year or less before being sold. This classification is significant for tax purposes, as short-term capital gains are typically taxed at ordinary income rates, which can be higher than the tax rates applied to long-term capital gains. Assets that have been held for more than one year qualify as long-term capital gains, benefiting from generally lower tax rates. Understanding these holding periods is crucial for individuals and professionals managing investment portfolios, as it impacts financial strategies and tax liabilities. The other options do not accurately capture the definition of a short-term capital gain, as they extend the holding period beyond the one-year maximum that characterizes short-term gains.