tax straddle

Tax straddle

Technique used in futures and options trading to create tax benefits. For example, an investor with a capital gain takes a position creating an artificial offsetting loss in the current tax year and postponing a gain from the position until the next tax year.

Tax Straddle

A practice in which two futures or options contracts, one expected to gain and one expected to lose, are sold in two different tax years. The contract expected to lose is sold at the end of one tax year while the one showing a gain is sold at the beginning of the following year. This is done in order to avoid taxation on a futures or option until the following year. This was formerly a common practice until the IRS began to require that all open positions be treated as if they were closed on the last day of the tax year for tax purposes. See also: Form 6781.

tax straddle

A combination of two similar futures contracts (one bought and one sold) that tend to move in opposite directions so that a loss on one is offset by a gain in the other. The contract showing the loss is sold in the current year (shortly before year's end), while the contract showing the gain is sold in the next year. The net effect is to push taxes back one year. This practice ended with legislation that requires all gains and losses in futures contracts to be realized for tax purposes at the end of each year. Compare mark to the market.
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References in periodicals archive ?
A tax straddle includes offsetting positions for personal property [section 1092(c)(1)].
Furthermore, the short sale rules (see Q 7643) and tax straddle rules (see Q 7698 to Q 7705) may require a tolling or recalculation of an individual's holding period.
The result may be a tax straddle even though it originally might seem that one does not exist.
For an explanation of the tax straddle rules, see Q 7698 to Q 7705.
Second, the contract may not be part of a tax straddle. Finally, the trader must meet IRS identification and reporting requirements.
(5a) See Q 7700 for the treatment of a tax straddle. These rules are demonstrated in the following example from H.R.
A "tax straddle" is the simultaneous ownership of offsetting interests (i.e., "positions") in actively traded personal property.
If a Treasury bill was held as part of a tax straddle, the additional rules and qualifications explained in Q 7698 to Q 7705 apply; if a Treasury bill was held as part of a conversion transaction, the additional rules explained in Q 7706 and Q 7707 apply.
Unless a precious metal is part of a tax straddle owned by the investor, or is part of a conversion transaction, no special tax rules apply to its sale.
It is not clear whether a married put that falls within the definition of a tax straddle will be subject to the straddle rules (see Q 1077 to Q 1084), nor whether one that falls within the definition of a conversion transaction will be subject to the conversion transaction rules.
(4) See Q 1079 for the treatment of a tax straddle. These rules are demonstrated in the following example from H.R.
If a tax straddle is made up solely of regulated futures contracts, foreign currency contracts, and nonequity option contracts (i.e., "IRC Section 1256 contracts"), each contract is generally taxed independently under the mark-to-market tax rules explained in Q 1076, except that if the investor takes delivery under, or exercises, any of the contracts making up the straddle, all the contracts in the straddle are deemed to have been terminated on the day of the delivery or exercise.