Final answer:
The word or phrase that needs to be capitalized in the sentence is 'Valentine's Day'.
Step-by-step explanation:
The word or phrase that needs to be capitalized in the sentence 'My favorite holiday of the year is Valentine's Day' is Valentine's Day. In this sentence, Valentine's Day refers to a specific holiday and should be capitalized as it is a proper noun. It is important to capitalize holidays, names, and titles to follow proper English grammar rules.
Learn more about Capitalization in English sentences