Tax treatment on LEAPS options

M

mikeds1

Hello,

Let's say you're bought on June this year LEAPS calls on MSFT strike 50 expiring on Jan 2018. In the december of this year, the position is showing a profit.

1. My understanding is that there is no tax event at this stage (no mark to market on options on equity, taxes are due only after options expire or get exercise), but it is always good to double check.

2. What happens if you then decide to sell in december some MSFT 2018 call option strike 60. Could you then unwind your (vertical spread) position in June 2017 with long term capital gain/loss for the strike 50 and a short term capital gain/loss for the strike 60 ? Or could that be considered a constructive sale from a tax perspective? I went through the IRS code but didn't find that particular situation.

Substantiated answers, or based on your experience will be very appreciated.
 
It comes down to wash sale rules re 'substantially identical' positions. I've sometimes had option trades classed as wash sales -- usually involving deep ITM options. As always in these situations, seek professional advice if the amount of money involved is material.
 
Thanks for your answer, that's insteresting. When you say that you had some options trades classed as "wash sales", who would make that determination? Is it the broker on their tax forms, yourself, the IRS?
What is a competent specialist to contact to get a definitive opinion on a case?
 
mikeds1 said:
Thanks for your answer, that's insteresting. When you say that you had some options trades classed as "wash sales", who would make that determination? Is it the broker on their tax forms, yourself, the IRS?
What is a competent specialist to contact to get a definitive opinion on a case?
More...
Your broker can report things how they see it, but they're not always correct in that reporting and don't really have a fiduciary duty to you to be correct. So never take your brokers word on any tax treatment, if you don't have expertise in it take it to someone who does.
 
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