Please Forgive Me - I bought an option! But now I have a Tax Question.

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Topic Author
jayrow
Posts: 2
Joined: Wed Sep 16, 2020 10:32 am

Please Forgive Me - I bought an option! But now I have a Tax Question.

Post by jayrow »

Hello all! New poster here. My portfolio is about 90% in VTI/AGG and I tend to 'play' around with the remaining in some companies I know well in the REIT space.

To make the post as simple as possible, please consider the following:

I bought an option for a specific REIT a few months ago and it has done very well. It was a ~4 month out of the money option. It expires Jan '21.

Well, now it is in the money and up ~200%. My question is this: If I hold the option and exercise at expiration, do I pay any capital gains tax? I can't seem to find any info on this anywhere!

Thanks!
JR
fabdog
Posts: 1293
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Please Forgive Me - I bought an option! But now I have a Tax Question.

Post by fabdog »

depends. if you actually take possession of the stock, then the option premium is added to your basis in the shares

If you just sell the now in the money option it's a short term CG

https://www.investopedia.com/articles/a ... ptions.asp

Mike
Topic Author
jayrow
Posts: 2
Joined: Wed Sep 16, 2020 10:32 am

Re: Please Forgive Me - I bought an option! But now I have a Tax Question.

Post by jayrow »

Thanks! So if I take possession of the stock, no tax consequence. Very helpful. I will read the article you posted.
fabdog
Posts: 1293
Joined: Wed Jan 16, 2013 1:59 pm
Location: Williamsburg VA

Re: Please Forgive Me - I bought an option! But now I have a Tax Question.

Post by fabdog »

not until you sell... then it's the normal process... except you add the option premium to whatever you paid for the shares

Mike
bo105954027
Posts: 119
Joined: Wed Mar 30, 2016 4:00 pm

Re: Please Forgive Me - I bought an option! But now I have a Tax Question.

Post by bo105954027 »

Would you mind revealing what real estate options you invested in?
Time in market beats timing the market.
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