What is the holding period for cash and property bequeathed through a will?

The correct understanding of the holding period for cash and property bequeathed through a will is that it is classified as long-term, regardless of the type of asset. When a person receives property through inheritance, the Internal Revenue Code resets the holding period for that property to long-term. This means that the inheritor is treated as having held the property for more than one year, regardless of how long the decedent actually held the property prior to death.

This long-term classification is significant for taxation purposes. If the inherited property is later sold, the long-term capital gains tax rate would apply, which is typically more favorable than the short-term capital gains tax rate. As such, the treatment of bequeathed assets simplifies the process for the inheritors and encourages long-term investment strategies.

The other options do not accurately reflect the tax treatment of inherited assets. For instance, a short-term holding period for all assets would not take into account the special tax provisions for inheritance. Similarly, stating that the holding period depends on the original owner's holding period contradicts the tax regulations that apply specifically to inherited assets, which reset the holding period automatically. Lastly, indicating that no holding period applies also misrepresents the laws regarding inherited property, which clearly stipulate that the