Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

A gain on stock is classified as a long-term gain when the stock is sold at a profit after being held for more than one year. This classification is critical for tax purposes, as long-term capital gains are typically taxed at a lower rate than short-term capital gains, which apply to stocks held for one year or less.

To qualify for the long-term rate, not only must the stock be sold after the one-year holding period, but the entire duration of ownership needs to exceed the one-year mark. Therefore, a gain recognized on stock sold after meeting this time requirement is essential for investors who want to manage their tax liabilities effectively.

Holding a stock for exactly one year does not automatically qualify it for long-term capital gain treatment; the sale must reflect a profit after surpassing that threshold. Thus, the position that highlights holding the stock for over one year before selling it at a profit accurately describes the circumstances under which a gain is considered long-term.