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

Posted: Wed Sep 16, 2020 10:36 am
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

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

Posted: Wed Sep 16, 2020 1:07 pm
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

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

Posted: Wed Sep 16, 2020 1:28 pm
by jayrow
Thanks! So if I take possession of the stock, no tax consequence. Very helpful. I will read the article you posted.

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

Posted: Wed Sep 16, 2020 1:34 pm
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

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

Posted: Wed Sep 16, 2020 4:15 pm
by bo105954027
Would you mind revealing what real estate options you invested in?