Trade Dates vs. Settlement Dates

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By Selena Maranjian (TMF Selena)
May 23, 2003

Q. What's the difference between the "trade date" and "settlement date" on my brokerage transaction records? Which do I use for tax purposes?

A. Whenever you place an order to buy or sell a security with your broker, a "trade date" and a "settlement date" will be recorded. The trade date, which is the date that the order was executed, is the one that counts for tax purposes. The settlement date is just the date when the cash or securities from the transaction are plunked into your account.

You're smart to ask a tax question in May. Too many people ignore taxes completely from May through March. To minimize the taxes you fork over to Uncle Sam, you need to keep up with current rules and make smart decisions throughout the year.

For example, if you're going to sell your house, you might be able to do so tax-free if you've lived there for two or more years. Fail to learn about this, sell it after living there for 22 months, and you can lose out on some big bucks. There's a similar consideration when selling stocks -- those held for longer than a year qualify for lower long-term capital gains tax rates.

Get the scoop on taxes from the horse's mouth -- the IRS website -- and also at the Fool's Tax Strategies area. 

If you have any questions, thoughts or opinions on this column, share them with others on our Ask the Fool discussion board.

This question and answer is adapted from The Motley Fool Money Guide: Answers to Your Questions About Saving, Spending and Investing. For answers to this and 499 other common money questions, check it out -- it's a handy resource.