ADDITIONAL TERMS

The holding period is simply the amount of time you hold onto your asset.

The holding period determines whether you have a short-term or long-term gain or loss. Certain assets have specific types of holding periods. For example, a stock's holding period is generally the time from its trade date of purchase to its trade date of sale. But if you receive more stock from a stock split, the holding period would be the same as that of the stock you already own.

Your basis in an asset is the amount you originally paid for the asset.

This also includes any brokerage fees or costs to acquire or improve the asset. When dividends are reinvested in an investment such as a mutual fund, the amount reinvested must be factored into the basis for the shares you own. Remember, unless the security is held within a tax-deferred account, such as an IRA, the dividends are taxed at ordinary income rates as they are paid.

When you sell an asset, the amount realized on that asset is the amount you get for the sale. With securities, the amount realized comes from the sale price minus your broker's fee. Your capital gain is the difference between your amount realized and your basis. If your basis is greater than your amount realized, you have a capital loss.

For example, if you buy 10 shares of a stock at $10 a share, plus $10 in broker's fees, your basis is $110. If you sell the stock at $20 a share and you pay an additional $10 in broker's fees, you receive $190. Your capital gain is $80 ($190-$110).

Now that you have learned some additional terms, let's conclude this tutorial.