7563. How is the owner of a listed put taxed if he liquidates his position by making a “closing sale” in the market?Nuco Employeercline212014-06-27T18:49:00Z2014-06-27T18:49:00Z25252994Summit Business Media247351214Site Map/Investments/Options/Equity Options/Stock OptionsTaxFactsDefaultArticle2006-01-04T00:00:00Z120871056-00-tf2.xml1056.00;#1921;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2How is the owner of a listed put taxed if he liquidates his position by making a “closing sale” in the market?
3700.00000000000TaxFactsDefaultArticle2010-01-14T22:06:25ZSBMEDIA\moss-admin7563. How is the owner of a listed put taxed if the owner liquidates a position by making a “closing sale” in the market?Any gain or loss realized by the owner of a listed put in a closing sale (i.e., the “sale” in the market of a put identical to the one held) is capital gain or loss.IRC Sec. 1234(a). (See Q 530 for the treatment of capital gains and losses.) The amount of capital gain or loss realized is the difference between the premium the owner receives in the closing sale and the premium the owner paid to acquire the put in the first place.The length of the taxpayer’s holding period will ordinarily determine the nature of the gain or loss (See Q 527 and Q 530). A capital gain realized in a closing sale of a put (other than a “married” put) is, however, under the short sale rules, automatically a short-term capital gain if (1) as of the date the put was acquired the underlying stock had been held by the put holder for a period that is less than the long-term capital gain (or loss) holding period for that stock (see Q 527) or (2) the underlying stock was acquired after the put was purchased, but on or before the closing sale of the put.IRC Sec. 1233(b); Rev. Rul. 78-182, 1978-1 CB 265. For the tax treatment of “married” puts, see Q 7566.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 a loss realized on the closing sale, and may have additional 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 an explanation of the effect of the wash sale rules on transactions involving options, see Q 7533 and Q 7552. For the effects that the acquisition and subsequent liquidation of a put have on the underlying stock, see Q 7561. For an explanation of the effect of the conversion transaction rules on transactions involving the contemporaneous acquisition of a put option and the underlying (or substantially identical) stock, see Q 7604.