If a stock is held for more than a year, how is the capital gain classified?

When a stock is held for more than a year before being sold, any profit realized from that sale is classified as a long-term capital gain. This classification is significant because long-term capital gains are typically taxed at a lower rate than short-term capital gains, which apply to assets held for one year or less. The preferential tax treatment for long-term gains is intended to encourage long-term investment strategies by individuals and institutions in the markets, supporting stability and growth.

Long-term capital gains benefit from reduced tax liability, making this classification particularly advantageous for investors looking to build wealth over time. Understanding this distinction helps investors plan their tax strategies and investment approaches effectively.