How Does the Holding Period Calculation Work under the FIFO Method?
Under the FIFO method, the holding period for a sold asset is determined by the purchase date of the very first units acquired, as these are assumed to be the ones sold. This can simplify tracking but may inadvertently push a sale into the long-term category, or vice versa, based on the initial acquisition date, regardless of when the actual sold unit was acquired.
Glossar
Holding Period
Duration ⎊ This term defines the intended time frame an investor plans to maintain a specific asset position or derivative contract before initiating a liquidation or rebalancing action.
Holding Period Calculation
Duration ⎊ Holding period calculation, within financial markets, quantifies the elapsed time an asset is owned, impacting tax liabilities and investment performance assessment.
FIFO
Allocation ⎊ First-In, First-Out, within cryptocurrency, options, and derivatives, dictates the order of asset disposition for tax and accounting purposes, directly impacting realized gains or losses; this methodology assumes the earliest acquired units are the first ones sold, influencing the cost basis calculation and subsequent tax liabilities, particularly relevant in decentralized finance where tracking acquisition dates is crucial.
Long-Term Capital Gains
Benefit ⎊ Long-term capital gains represent the profit realized from the sale of a capital asset, including certain cryptocurrencies and financial derivatives, held for a period exceeding one year.