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Get your taxes done using TurboTax
Let's try an example:
September 9 An investor buys 100 shares of XYZ common stock for $58
October 12 The stock price closes at $56
October 13 The investor writes an XYZ December 55 call
This option is an in-the-money qualified covered call
November 14 The investor closes the XYZ December 55 call by making a closing purchase
November 16 XYZ stock goes ex-dividend to shareholders of record on November 18
December 2 The investor sells the XYZ stock
Tax treatment:
- The investor is not entitled to the 15% rate on the dividend, because the stock was not held for 61 days during the required 121-day period.
- The stock was deemed to be held from September 9 to October 13 (34 days) and from November 14 to December 2 (17 days) for a total of 51 days.
- The period from October 13 to November 14 is not included in the holding period because of the in-the-money covered call.
Note: Writing an at-the-money or out-of-the-money covered call allows the holding period of the stock to continue. In the example above, had a 42.50-strike call or a 45-strike call been written with the stock price at $41, then the investor would have met the holding period requirement to be eligible for the lower tax rate of qualified dividends.
I recommend that you seek the advice of a Licensed Financial Adviser, because this isn't an area of TurboTax expertise.
Please see Covered Call Qualified Dividend
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