Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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When securities are gifted, what happens to the recipient's holding period?

It starts fresh from the date of gifting
It is immediately terminated
It continues as if the recipient held the securities from the donor
It is irrelevant to the recipient

The correct answer is: It continues as if the recipient held the securities from the donor

When securities are gifted, the recipient's holding period continues as if they had held the securities from the donor. This concept is significant for tax purposes, particularly regarding capital gains and losses. The holding period is essential because it determines whether a gain or loss on the sale of the securities is considered short-term or long-term. If the donor held the securities for more than one year before gifting them, this extended holding period is transferred to the recipient, which can potentially result in more favorable tax treatment for any gains upon sale. Therefore, in the context of gifting securities, the important aspect is that the recipient inherits the donor's holding period, thus impacting how future transactions are treated from a tax perspective.