Taxes and Options
If you let an option expire you obviously take a capital loss, but what about if you buy an option on the exact same stock with in the 30 day does that count as a back wash rule?
Like one expires in June --- took loss
other expires in july but bought it
HALPSZ
Google is a magical place: http://www.fairmark.com/capgain/wash/wsoption.htm
Updated June 1, 2007
does this apply for 2010?
If you're worried, I remembered reading up on wash sale rules and options capital gains treatment in West Federal Taxation a few years ago. They come out with a book every year, but 2005 is too long ago for me to remember the exact details.
If this is a problem that a major institution is facing and you're prepared to pay thousands of dollars to see if there's a way to save you a few million in tax, I can hook you up with a nationally recognized expert on derivatives taxation. Year-end is kinda busy for tax accountants, though.
Different months and strikes are considered entirely different securities, hence the different option symbols. Having an option expire worthless and buying the same strike for the following month does not trigger a wash sale.
Hasn't anyone here passed the Series 7?
Yes, Eddie, but if you exercise that option, all sorts of craziness ensues when it comes to holding periods and wash sales, IIRC.
Also, methinks the IRS would frown on replacing a stock holding with a virtual long position on options to avoid wash sale rules. I think that qualifies as a substantially equivalent security or whatever the wording is.
That's why you really want to ask a CPA for an answer on this stuff. Wash sales suck, particularly if you have a wash sale in a taxable account and buy the replacement in an IRA. That really sucks, since you lose your basis permanently.
Oh well, apparently, you win kudos for reading the question the most carefully and making all the logical deductions that would be appropriate before answering.
It's really just standard wash sale stuff. If you exercise an option and purchase the stock, and then sell the stock for a loss somewhere down the line, you're just not allowed to buy the stock back in the next 30 days without nullifying your taxable event. The option doesn't play a part in the wash sale.
I think the OP was concerned about being unable to write off the total loss on the expired option if he buys another option on the same stock within 30 days. The answer to that is no, it's not a problem, you still get tax credit for the loss as the new option is considered an entirely different security.
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