7557. If the owner of an unlisted call sells it prior to exercise or expiration, how is the sale taxed?Nuco Employeercline202014-06-27T18:50:00Z2014-06-27T18:50:00Z24122354Summit Business Media195276114Site Map/Investments/Options/Equity Options/Stock OptionsTaxFactsDefaultArticle2006-01-04T00:00:00Z120811050-00-tf2.xml1050.00;#1921;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2If the owner of an unlisted call sells it prior to exercise or expiration, how is the sale taxed?
47800.0000000000TaxFactsDefaultArticle2010-01-14T23:04:48ZSBMEDIA\moss-admin7557. If the owner of an unlisted call sells it prior to exercise or expiration, how is the sale taxed?The sale is taxed to the seller as the sale of a capital asset.IRC Sec. 1234(a). The seller realizes capital gain to the extent that the selling price exceeds the tax basis in the call option; if the tax basis exceeds the selling price, the seller realizes a capital loss. (See Q 530 for the treatment of capital gains and losses.) An investor’s tax basis in a call option is the total option premium (including commissions) paid to acquire the call.See IRC Sec. 1234(a); Rev. Rul. 78-182, 1978-1 CB 265. The nature of capital gain or loss realized on the sale of a call option will ordinarily depend on the length of the taxpayer’s holding period (See Q 527 and Q 530).Treas. Reg. §1.1234-1(a).For an explanation of the effect of the wash sale rules on transactions involving options, see Q 7533 and Q 7552.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 sale treatment under IRC Section 1259 (See Q 7605 to Q 7607).The contemporaneous holding of a call option and granting of a put option with respect to an equity interest in a pass-through entity may constitute a “constructive ownership transaction” under IRC Section 1260 (see Q 7608 and Q 7609).If a call option was part of a tax straddle in the hands of the investor, the tax straddle rules may result in a deferral of the recognition of a loss realized on a sale of the call option and, furthermore, 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.