7583 / How are nonequity options taxed?
Like any other position taxed under the “mark to market” requirements, a nonequity option is excluded from the definition of an appreciated financial position under IRC Section 1259(b)(2)(B) (see Q 7617). However, it appears that, depending on the taxpayer’s other holdings, the acquisition of a nonequity option could be construed as a constructive sale of a position that is substantially identical to the nonequity option or the property underlying it.1 Future regulations may clarify this and other issues with respect to the application of IRC Section 1259 to options transactions.
For the tax treatment of a nonequity option that is part of a tax straddle, see Q 7593 to Q 7614. For the tax treatment of a nonequity option that is considered part of a conversion transaction, see Q 7615 and Q 7616.
1. IRC § 1259(c)(1)(E).
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