Expired Calls
In client’s IRA; he sells 2 calls against a stock to generate income.
Then, later in year (2010) he moves the sold call contracts from his IRA to his joint account.
At the time of the distribution, the call contracts are worth $0.31 a piece.
Then, this year (2011) the calls expired worthless.
How are these expired calls taxed this year in the joint account? Is it a $62 (2 @ .31) gain or loss?
Thank you in advance
Kevin
Permalink Submitted by Alan Spross on Mon, 2011-02-14 22:57
Not sure about how the IRA custodian will report this, but the Sch D ST cap gain upon expiration would be affected by the value of the contract when distributed from the IRA. Client should have a 1099R by now showing the IRA distributions, and it seems logical to me that the IRA custodian show the market value of the contract on the day of distribution from the IRA. Whatever the gross 1099R amount is on the 1099R for the contract should become cost basis for the Sch D entry, otherwise you have double taxation.
I would expect that the 1099R would show $62, and if so, the Sch D amount realized would be the actual premium less $62.
Example: 1) Premium for selling the call was $100 and went to the IRA; contract worth $62 when distributed; ST gain would be $38 on Sch D.
2) Premium for selling the call was $40 and went to IRA; contract worth $62 when distributed; ST loss of $22 on Sch D
Permalink Submitted by Kevin DeNardo on Tue, 2011-02-15 17:26
Thank You Alan!