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.