7601 / How is it determined whether a gain or loss on the disposition of a tax straddle is long-term or short-term?

Short sale rules. For purposes of determining whether a gain or loss on the disposition of a straddle position is long-term or short-term, two rules similar to the general short sale rules (see Q 7525) apply. First, unless a position was held by the taxpayer for a period of time at least equal to the long-term capital gain holding period before a straddle including that position was established, the holding period of that position will be treated as beginning no earlier than the date on which the taxpayer no longer holds, directly or indirectly, an offsetting position with respect to that position. Second, the loss on the disposition of a straddle position (or positions) will, regardless of the holding period of such position, be treated as long-term capital loss if on the date such loss position was entered into the taxpayer held, directly or indirectly, one or more offsetting positions and all gain or loss on one or more positions in the straddle would have been treated as long-term capital gain or loss had such position(s) been disposed of on the day the loss position was entered into.¹

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1.   IRC § 1092(b)(1); Temp. Treas. Reg. § 1.1092(b)-2T.

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