Definition
Profit on an investment held for more than one year before selling, taxed at preferential rates that sit below ordinary income rates, including a 0% rate at lower incomes. Gains on assets held a year or less are short-term and taxed like wages.
Why it matters
The holding period is one of the few tax levers entirely in your control: the same sale, timed past the one-year mark, can cut the tax on a gain substantially. It is also why frequent trading in a taxable account quietly underperforms.
Example
An investor is up $10,000 on shares bought 11 months ago. Selling now, the gain is taxed as ordinary income at their 24% rate: $2,400. Waiting five more weeks makes it long-term at their 15% rate: $1,500. Five weeks of patience keeps $900.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.