Tax-timing option

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Tax-timing option

The option to sell an asset and claim a loss for tax purposes or not sell the asset and defer the capital gains tax.

Tax-Timing Option

An option every investor has to either sell an asset for a loss and thereby reduce one's tax liability or continue to hold it and maintain the possibility that one may eventually sell it for a gain.
References in periodicals archive ?
The value of tax-timing options is a third tax-related feature of the parent-subsidiary relationship.
The impact of taxable gain liability, tax shields, and tax-timing options appears to be modest and certainly not sufficient to explain the observed value ratios.
As with standard options, the tax-timing option of any security increases in value with underlying security volatility.
The tax-timing option value, ignoring all transaction costs and market imperfections, is:
Since the term in brackets cannot exceed one when [micro] is positive, the value of the tax-timing option is at most [tau] percent of the company's market value.
This is attributable to the increased value of options when their maturities are lengthened and the greater volatility of long-term bond prices, which increases the value of tax-timing options on these bonds.
3) However, they do not consider whether the existence of investor tax-timing options influences corporate debt maturity structure choice.
Section I describes the model and establishes conditions under which debt maturity structure is irrelevant without investor tax-timing options.
We first describe the model and establish a set of conditions under which firm value is independent of debt maturity structure without investor tax-timing options.
To determine whether investor tax-timing options influence debt maturity structure choice, we compare the values of the marginal investor's tax-timing options under the long- and short-term debt maturity strategies.
This paper examines the influence of corporate debt maturity policy on investor tax-timing options.
1 A number of studies document evidence on the value of tax-timing options in bond (Jordan and Jordan (1991) and Litzenberger and Rolfo (1983)), stock (Lamoureux and Pooh (1987)), and derivative security prices (Cornell and French (1983)).