Long-Term or Short-Term
Capital gains and losses are either long-term or short-term, depending on how long the taxpayer owned the stock. Stock held for:
To find out how long the taxpayer held the stocks, begin counting the day after the day the shares were purchased and include the day the shares were sold. The sale trade date is included in the holding period. If investment property is inherited, the capital gain or loss is treated as long-term. This is true regardless of how long the property is held (except for property inherited in 2010).
You may provide assistance to taxpayers who sold property inherited from someone who died in 2010 as long as the taxpayer knows the basis and the correct holding period. Refer taxpayers who do not know this information to a professional tax preparer. Determining basis and the correct holding period for property inherited in 2010 is complex and outside the scope of VITA/TCE. See Publication 4895 for more information.
If a taxpayer acquired property from a decedent who died in 2010, special rules may apply in determining tax items including basis, gain, loss, holding period, and character for the property. Determining these tax items is complex and outside the scope of the VITA/TCE programs.
Determining the correct holding period is important because short-term gains are taxed at regular income tax rates and long-term gains are taxed at a lower rate than the other income reported on the return.
Although stock splits and stock dividends do not occur often, you should not assume they never happen. Ask taxpayers if they received any additional shares from a stock split or stock dividend.