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I made an investment in a startup company last year.

I sent the wire transfer on August 4. I have a legal document from the company entitling me to X number of shares on September 1, but my shares have actually not been issued yet.

What date is used for starting the clock on long-term capital gains treatment?

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"Capital gains" occur in the tax year when you sell your shares and take a profit on them. As long as you simply hold them, there is no tax treatment of them one way or the other. The IRS does not expect you to pay taxes on "anticipated gains" when nobody can possibly know what those gains will be or when you plan (or are able) to realize it.

Until or unless you sell the shares, there's no way to know if you actually will see a return on your investment, although that's a totally different topic.

EDIT

Thanks to JoeTaxpayer for pointing out what I was missing in your question!

I doubt the clock would start until at least the point at which you receive your share certificates, since you have yet to be given them. At the moment you have nothing more than a promissory note of shares in exchange for your investment. The "taxability" (let me invent a word here!) of your investment first presumes you have an ability to sell that share position and realize either a gain or loss, and you cannot since you don't have the certificates in hand (or however they're being delivered to you).

I hope this helps.

Good luck!

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  • OP was asking when the 1-year mark would be crossed. He's not sure how the IRS will decide what his purchase date is. – JTP - Apologise to Monica Jun 12 '16 at 0:30
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    Good point, and thanks for clarifying for me, JoeTaxpayer. I doubt it would be any time prior to him taking actual possession of the share certificates. Right now he has little more than a promissory note of shares not yet delivered. – Daniel Anderson Jun 12 '16 at 0:37
  • Well, for context, i'm looking at an imminent 100% loss. Hoping to qualify for short term loss treatment. :) – Jeremy T Jun 12 '16 at 2:13
  • Why would it depend on when the certificates are received? I have money in a401K, an IRA, and non-retirement accounts. Yet I have zero certificates in hand. – mhoran_psprep Jun 12 '16 at 11:08
  • True, but you have access to the funds in those accounts and they're earning interest. If, for example, you'd opened those accounts by mail, you wouldn't have started earning anything until the day the accounts were actually opened, not the day when you mailed the paperwork or check. Here, poster invested the money but has no proof of anything beyond a pledge to receive share certs at some point in the future. Where's the capital gains liability in the meantime? He has no gain to tax, nor is there a definite loss to deduct. – Daniel Anderson Jun 12 '16 at 12:16

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