Long-term gains (on property held more than one year) are taxed at a special lower rate, generally at no more than 15 percent through the end of 2010; gains on property held for one year or less is taxed at your ordinary income tax rate, which may be as high as 35 percent in 2006 through 2010. Short-term gains are reported in Part I of Schedule D, and long-term gains are reported in Part II.

Save Money When counting the days that you held the property, the holding period begins on the day after you bought the property, or the day after the trade date for stocks and other securities sold in an established market. This can be a trap for the unwary -- try to avoid selling investments exactly one year after you bought them, or you'll end up with short-term, not long-term, gain.

If you acquired property in a nontaxable trade, your holding period for the property will begin on the day following the date you acquired the original property that you gave up in the trade.

If you received property by gift and your basis is determined by your donor's basis, your holding period begins when the donor acquired the property. If you must use the FMV at the time of the gift as your basis, your holding period begins when you received the gift.

If you received the property by bequest or inheritance, your holding period is always considered "long term" and you will get the benefit of the lower tax rate on capital gains even if you sell the property the day after you receive it.

Warning If you are selling inherited property within one year of receiving it, report it as a sale of long-term property in Part II of Schedule D, and write "INHERITED" in Column (b) instead of the date you received the property. Otherwise, the IRS may question your long-term treatment.

If you sell stock that you acquired as part of a spin-off or stock dividend, your holding period begins on the same date as the original investment.

There are additional rules and options if you made multiple purchases of a stock or mutual fund on different days, particularly if you sell only part of your investment.