Intuit Academy Tax Practice Exam 2025 – All-in-One Guide for Exam Mastery!

The correct answer highlights a crucial aspect of capital gains taxation in the United States. Long-term capital gains indeed apply to assets that an individual has held for more than one year. This distinction is significant because long-term gains are usually taxed at more favorable rates compared to short-term gains, which are taxed at an individual’s ordinary income tax rates.

The reasoning behind the preferential treatment of long-term capital gains is rooted in the idea that holding an asset for a longer period encourages investment and stability within the market. As a result, taxpayers benefit from a reduced tax rate after meeting the one-year holding period requirement, making it financially advantageous to invest for the long term.

Understanding this difference is critical for tax planning and investment strategies, as it can significantly affect the amount of tax owed when an asset is sold. In contrast, the other options present inaccuracies about the definitions and tax implications of short and long-term gains.