In the context of asset transfers, when is tacking on the old holding period allowed?

Tacking on the old holding period of an asset is a provision that allows the new owner of a capital asset or a § 1231 asset to include the holding period of the previous owner when determining if the asset can qualify for long-term capital gain treatment.

For capital assets, the holding period is crucial because it affects the tax rate applied to any gains when the asset is sold. If the holder has owned the asset for more than one year, the gain from its sale is generally taxed at a lower long-term capital gains rate. Thus, if the asset was held long enough by the previous owner, tacking on this period can provide significant tax advantages for the new owner.

This principle allows for continuity in tax treatment when assets change hands, ensuring that favorable tax outcomes are preserved. It is important to note that this tacking of holding periods does not apply uniformly across all types of transactions or assets, which is why it is limited to specific categories of assets, such as capital and § 1231 assets.