Which is true regarding the tax treatment of capital gains for stock held over one year?

When stocks are held for more than one year, any resulting gains from their sale are treated as long-term capital gains. This treatment is significant because long-term capital gains are taxed at reduced rates compared to ordinary income or short-term capital gains.

Long-term capital gains rates are typically lower than the rates applied to ordinary income, making it advantageous for investors to hold their investments longer than one year before selling. The increased holding period encourages long-term investment and is designed to incentivize individuals to maintain their investment in a security for a longer period of time.

The option stating that long-term capital gains rates apply directly reflects this preferential treatment under the tax code, acknowledging the beneficial tax implications of holding capital assets for over a year. This understanding is critical for tax planning and optimizing investment strategies for individuals looking to minimize their tax liability.