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Holding period

LTCG clock · Long-term holding period

A holding period is the time between acquiring a share and selling it. US tax law uses it twice: a share held more than one year sells at the long-term capital gains rates, and ESPP or ISO shares also need more than two years from the option's grant date for the sale to be a qualifying disposition.

What is a holding period?

The long-term clock starts the day after the shares are acquired and is met by a sale more than one year later; a sale on the anniversary is still short-term. For an option it starts at the exercise, for RSU shares the day they are delivered, for an ESPP lot on the purchase date, whichever paydays the money came from.

The statutory hold on ESPP and ISO shares is a second test. It needs the long-term clock to have run and more than two years to have passed since the grant date, which for an ESPP is the offering's first day when the plan caps the shares each employee may buy, and otherwise the purchase date. A sale that passes both is a qualifying disposition; one that fails either is disqualifying.

The two are confused because they share the one-year leg. A lot exercised seven weeks after the grant is long-term after a year but does not qualify until the two-year mark, ten months later. A sale in between is long-term and disqualifying at once: the capital part is long-term, and the bargain element is still ordinary income.

How a holding period works, with numbers

An ISO is granted on January 10, 2025 and exercised on March 1, 2025. The shares are long-term from March 2, 2026, the day after a year has passed. Two years from the grant runs to January 10, 2027, so the first day a sale qualifies is January 11, 2027.

A sale on June 1, 2026 is long-term but disqualifying: ten months separate the two clocks. A sale on January 11, 2027 or later passes both.

Grant date
Jan 10, 2025
Exercise date
Mar 1, 2025
Long-term from, exercise + 1 year + 1 day
Mar 2, 2026
Two years from grant + 1 day
Jan 11, 2027
Qualifying from, the later of the two
Jan 11, 2027

Why a holding period matters

The long-term clock sets the rate on the capital part of a sale: a gain held more than a year is taxed at the long-term capital gains rates. The statutory hold sets the character of the discount or spread the shares carried on the day they were bought: ordinary income on one side of the date, capital gain or nothing on the other.

Both clocks run per lot. Two ESPP purchases six months apart, or two exercises of one grant, carry two sets of dates.

Holding period in Taiga Finance

Taiga Finance shows the statutory clock as a date. An ESPP lot's purchase history has a Qualifies column with the date the lot qualifies, or QUALIFIED once it has, and the Coming up list carries the dates still ahead as “ESPP lot qualifies”. The sale planner marks a lot on a chosen sale date as QUALIFYING or DISQ. UNTIL its date, and splits the capital part into LT and ST totals.

The long-term clock shows on what is sold: a recorded sale of an ESPP lot or an exercise lot reads “LT gain” or “ST gain” on its row, measured from the purchase or the exercise.

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Key takeaways: Holding period

  • Long-term means more than one year from the day the shares were acquired. The anniversary itself is still short-term.
  • ESPP and ISO shares carry a second clock: more than two years from the grant, on top of the year from the purchase or exercise.
  • Long-term and qualifying are different tests. A lot can pass the first and fail the second.
  • The clocks run per lot: an option from its exercise, RSU shares from their delivery, an ESPP lot from its purchase.

Questions about Holding period

What is the holding period for stock options?

For the long-term capital gains rate, more than one year from the exercise. For an ISO to sell as a qualifying disposition, also more than two years from the grant. An NSO has only the first clock, since its spread was ordinary income at exercise.

How long do shares have to be held for long-term capital gains?

More than one year, counted from the day after they were acquired. A sale on the one-year anniversary is short-term; a sale the next day is long-term.

When do RSUs qualify for long-term capital gains?

More than one year after the shares are delivered, counting from the day after. The two-year hold of Sections 422 and 423 applies to options, so RSU shares have only the one-year clock.

Does Taiga Finance show each lot's holding period?

It shows the qualifying date per ESPP lot, marks a planned or recorded sale as qualifying or disqualifying, and labels the capital part of a recorded sale LT or ST from the lot's own purchase or exercise date.

Related terms

Qualifying disposition →A qualifying disposition is a sale of ESPP or ISO shares made more than two years after the option was granted and more than one year after the shares were bought or exercised. Meeting both holds is what lets most or all of the gain be taxed as long-term capital gain instead of ordinary income.Disqualifying disposition →A disqualifying disposition is a sale of ESPP or ISO shares before both holding periods have run: two years from the grant date and one year from the purchase or exercise date. It makes the discount or spread the shares carried on the day they were bought ordinary income in the year of the sale.Cost basis →Cost basis is what an asset cost for tax purposes: the amount paid for it, plus any part of its value that has already been taxed as income. A sale is taxed on the difference between the price received and the basis, so the basis decides how much of a sale counts as gain.RSU →An RSU (restricted stock unit) is an employer's promise to hand over one share of its stock once a vesting condition is met, such as continued employment through a schedule. Nothing is bought: the shares arrive on the vest date, and their value that day is taxed as wages.

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