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For the purposes of computing long term versus short term capital gains tax treatment, when does the holding period for real estate end?

I can think of several options:

  1. At execution of the purchase contract
  2. At open of escrow.
  3. At the date of execution of the Grant Deed or Warranty Deed
  4. At the date that Deed is recorded
  5. At the date the sale proceeds are distributed by the escrow holder
  6. At the date the sale proceeds are received by the seller

Which is it?

  • Just sending this your way in case it clears it up for you (I don't have time to write it out fully right now): fool.com/taxes/how-to-calculate-a-holding-period.aspx – BobbyScon Aug 6 '18 at 18:13
  • In Australia it is contract date. – Victor Aug 6 '18 at 21:13
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    @BobbyScon, that article does not say when the holding period ends, which was my question. It talks about a "date of sale," but it sheds no light on which of the 6 options I listed above, if any, constitute the end of the holding period. And it matters: the sale process is a multi step process that typically spans weeks, even months. – Andrew Cone Aug 7 '18 at 18:14
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From The Motley Fool:

Real estate: If you purchase real property under an unconditional contract, you begin counting on the day you received title to the property or the day after you took possession and assumed the incidents of ownership, whichever is earlier. Taking delivery or possession of real property under an option to purchase, however, is not enough to start the holding period. The holding period cannot start until there is an actual contract of sale. Likewise, the seller's holding period cannot end before that time.

I understand this as stating the execution of the contract both starts the holding period for the buyer and ends it for the seller. The phrasing seems vague with the "cannot" part, but I read this as this step is when it happens and there is no way to make it earlier.

If you want a truly thrilling read, you can read the 26 U.S. Code 1223 - Holding period of property which may provide additional information or links to other US Codes that specify further.

From the IRS website (emphasis mine):

Short-Term or Long-Term

To correctly arrive at your net capital gain or loss, capital gains and losses are classified as long-term or short-term. Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; or for commodity futures, see Publication 550, Investment Income and Expenses. To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset.

Disposing of an asset in real estate typically refers to date of contract execution, reinforcing my thoughts from the first article.

  • Sure, it cannot end before that time, but my question is when does it end? – Andrew Cone Aug 7 '18 at 18:12
  • As for 26§1223, I just read the whole thing, and nowhere does it answer the question I asked, or anything even close. – Andrew Cone Aug 7 '18 at 18:17
  • @AndrewCone - I've elaborated based on my interpretation of the source, and provided an additional quote from the IRS website. I believe this matches #1 from your original list. – BobbyScon Aug 7 '18 at 20:01

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