For the 2025 U.S. federal tax year, an individual purchases stock on March 10, 2024, and sells it on March 10, 2025. Under the capital gains holding period rules, how is the gain characterized?
- Long-term capital gain, because the holding period reaches exactly one year
- Short-term capital gain, because the holding period must exceed one year — not merely equal one year — to qualify as long-term
- The gain is exempt from capital gains tax because the stock was held for a full calendar year
- The characterization depends on whether the stock was held in a tax-advantaged account
Correct answer: B. Short-term capital gain, because the holding period must exceed one year — not merely equal one year — to qualify as long-term
The IRS holding period rule counts from the day after acquisition through and including the day of disposition, and a gain is long-term only if the asset was held for more than one year; holding from March 10, 2024, through March 10, 2025, is exactly one year, so the sale one day too early to exceed the one-year mark produces a short-term gain, taxed at ordinary income rates rather than preferential long-term rates. The first option is wrong because reaching exactly one year is not the same as exceeding it — the IRS's own example shows that selling on the one-year anniversary date, rather than the day after, still yields a short-term result. The third option is wrong because there is no capital gains exemption tied to holding an asset for a calendar year. The fourth option is wrong because the more-than-one-year threshold applies to taxable brokerage holdings generally and is not altered by account type in this context.
Source: IRS Topic no. 409, Capital gains and losses (2025)