7540. How is the owner of a warrant taxed when the warrant is sold, exercised, or allowed to lapse?Nuco Employeercline202014-06-26T17:21:00Z2014-06-26T17:21:00Z23582044Case Western Reserve University174239814Site Map/Investments/Stocks/Stock WarrantsTaxFactsDefaultArticle2007-01-30T00:00:00Z120661035-00-tf2.xml1035.00;#1962;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How is the owner of a warrant taxed when the warrant is sold, exercised, or allowed to lapse?
26500.0000000000TaxFactsDefaultArticle2010-01-14T22:37:24ZSBMEDIA\moss-admin7540. How is the owner of a warrant taxed when the warrant is sold, exercised, or allowed to lapse?The sale, exercise, or lapse of a stock warrant is taxed in the same general manner as an unlisted call option.See IRC Sec. 1234.Sale. If a warrant distributed in a nontaxable stock dividend is sold, the owner realizes a capital gain or loss to the extent of the difference between the tax basis in the warrant and the proceeds of the sale. (For the tax basis of a warrant acquired in a nontaxable stock dividend, see Q 7511.)See IRC Sec. 1234(a). In determining the owner’s holding period for the warrant, the holding period of the stock with respect to which the dividend was paid is included.IRC Sec. 1223(5). See Q 530 for the tax treatment of capital gain or loss.If a warrant distributed in a taxable dividend (or acquired by purchase, gift, or inheritance) is sold, the owner realizes a capital gain or loss to the extent of the difference between the tax basis in the warrant and the proceeds of the sale. (For the tax basis of a warrant distributed in a taxable dividend, see Q 7503. For the tax basis of a warrant acquired by purchase, gift, or inheritance, see Q 521.)Exercise. The owner of a warrant will realize no capital gain or loss on exercise of the warrant and purchase of the stock. However, for purposes of determining gain or loss on a subsequent sale or exchange of that stock, the tax basis of the warrant is added to the subscription price paid for the stock.See Treas. Reg. §1.307-1(b).Lapse. If allowed to expire without exercise (i.e., lapse), a warrant is deemed to have been sold on the date of lapse.See IRC Sec. 1234(a)(2). The owner of the warrant will realize a loss only if he or she has a tax basis in the warrant. This occurs only when the owner acquired the warrant in a taxable stock dividend, or through purchase, gift, or inheritance. The basis of a warrant received in a nontaxable stock dividend is zero unless it is actually sold or exercised (See Q 7511).