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Tax, stock, options
Old 01-12-2018, 01:44 PM   #1
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Tax, stock, options

Looking for feedback on whether I'm thinking this out right.

A covered call has run deep into the money. Ok to sell the position to rebalance. Subject to full capital gains taxes. Have mutual funds that make annual realized short and long term distributions.

Does it make more sense to buy the call back, realizing a short term loss (offsetting some of the fully taxable MF STgains) and sell the underlying stock at a larger (lower tax rate) long term gain, than just letting the security be called, realizing a smaller long term gain?

In theory, there's no difference between theory and practice. In practice, there is. YB
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Old 01-12-2018, 09:09 PM   #2
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Join Date: Feb 2013
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I've never done a buy/write but I recall hearing about tax complications from this kind of transaction. Here's a writeup I found that explains it-- and it looks more complicated than I remembered: Qualified Covered Calls—Special Rules -

Bottom line it depends on when and how you priced the calls you sold. If they were sold out of the money then I think you're fine, but otherwise you may lose the long term status on the underlying shares. It's summarized in the anti-straddle rules in the link above.
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