Tax-timing option

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 ?
As a result, the value of a bond for a taxable investor should be higher by the value of the tax-timing option. Whether or not the value of the tax-timing option is reflected in the bond prices depends on the tax status of the marginal bondholder.
Thus, both the tax clientele and the tax-timing option imply that the ratio of taxable and tax-exempt yields would not equal the tax rate of the marginal investor.
Taxes and bond returns
In this thesis, I extend Lewellen and Mauer's (1988) theoretical model on tax-timing option by incorporating derivatives and show how firms use derivatives to exploit tax-timing and tax-character options in order to enhance firm market value.
Tax Planning Using Derivative Instruments and Firm Market Valuation under Clean Surplus Accounting. (Doctoral Research in Taxation)
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:
Pricing an emerging industry: Evidence from Internet subsidiary carve-outs
Tian, 1996, "Optimal Bond Trading and the Tax-Timing Option in Canada", Journal of Banking and Finance, 20:1351-1363
12040300 Derivative trading strategies
This tax-timing option is valuable to an issuing firm that is in a low tax bracket when it raises capital but may face higher tax rates in the future.
The issuing firm gives up a valuable tax-timing option if it issues non-exchangeable convertible preferred.
Executive Summaries
Schallheim, 1991, "The Tax-Timing Option and the Discounts on Closed-End Investment Companies", Journal of Business, 64:287-312
14010200 Taxation
This tax-timing option is valuable to an issuing firm that currently is in a low tax bracket but could face higher tax rates in the future.
Tax Options, Clienteles, and Adverse Selection: The Case of Convertible Exchangeable Preferred Stock
Constantinides (1983, 1984) and Constantinides and Ingersoll (1984) show that the ability of investors to realize tax credits on capital losses, and to defer taxes on capital gains, conveys to them a valuable tax-timing option that can contribute significantly to the value of a position in a security.
Corporate debt maturity policy and investor tax-timing options: theory and evidence
Mauer, 1988, "Tax-Timing Options, Leverage, and the Choice of Corporate Form", Journal of Financial Research, 11:99-110
12020240 Optimal capital structure
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