7564. How is an owner of a put taxed if he allows the put to expire without exercising it?Nuco Employeercline202014-06-27T18:27:00Z2014-06-27T18:27:00Z23922240Summit Business Media185262714Site Map/Investments/Options/Equity Options/Stock OptionsTaxFactsDefaultArticle2006-01-04T00:00:00Z120881057-00-tf2.xml1057.00;#1921;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How is an owner of a put taxed if he allows the put to expire without exercising it?
8400.00000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T22:12:24Z7564. How is an owner of a put taxed if the put expires before exercising it? Except in the case of a “married” put (see Q 7566), any put allowed to expire without exercise (i.e., lapse) is deemed to have been sold or exchanged on the expiration date, and the owner realizes capital loss in the amount of the total option premium paid to acquire the put.IRC Sec. 1234(a)(2); Treas. Reg. §1.1234-1(b); Rev. Rul. 78-182, 1978-1 CB 265. (See Q 530 regarding the treatment of capital losses.) The length of the taxpayer’s holding period will ordinarily determine the nature of the gain or loss (See Q 527 and Q 530).Treas. Reg. §1.1234-1(a).Future regulations will provide that if a taxpayer enters into certain option transactions (e.g., the purchase of a put) and the underlying property becomes substantially worthless, the taxpayer will recognize gain in the same manner as if the contract were closed when the property became substantially worthless.See IRC Sec. 1233(h)(1).Certain combinations of options, or options held contemporaneously with offsetting positions that have the effect of reducing both the taxpayer’s risk of loss and opportunity for gain, may trigger constructive sales treatment under IRC Section 1259 (See Q 7605 to Q 7607).If a put option was part of a tax straddle in the hands of the investor, the tax straddle rules may result in deferring recognition of the loss realized on the expiration of the put and, in addition, may have unfavorable effects on the characterization of gains and losses realized on positions making up the straddle. See Q 7586 to Q 7602 for details.For the effect that the acquisition and subsequent lapse of a put have on the underlying stock, see Q 7561. The tax effects of allowing “married” puts to lapse are discussed in Q 7566.