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Author: KOOKERD Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121261  
Subject: Rollling Calls Date: 11/22/2010 4:10 PM
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I currently have a LEAP option on a stock that is now deep in the money, but still has good prospects for the future so I am looking at rolling the call forward to a 2013 LEAP. However, I am confused by page 63 in Pub. 550 for recording the transaction appropriately on Schedule D as it instructs me to list it as if it were a SSBIC transaction. What is the proper way to record a call that you have rolled forward into a future tax year?
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Author: loopholes One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 111511 of 121261
Subject: Re: Rollling Calls Date: 11/26/2010 3:21 PM
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I think you are misreading the publication. If you are looking at the subsection that deals with elective deferral of gain on replacement positions, this does not apply in the circumstances you described. To qualify for this elective deferral, you have to own equity in a small business and replace it with another equity investment. Option for option replacement strategies are not eligible for elective gain deferral.

You report gain recognized on closing out the in the money calls in the tax year you closed them. So, if (as I assume) you are closing out the earlier dated leap when purchase the 2013, the amount you received, net of the premium you paid for it, goes on sched D. The premium you pay for the 2013 call doesn't reduce your gain from closing out the earlier dated call. I think the instructions you are looking for are on page 60.

You should check this with your tax preparer, since these rules are complex and you may have special circumstances you haven't told us that influence how you report gain on options transactions.

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