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Strategies & Market Trends : Income Taxes and Record Keeping ( tax )
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To: Privately who wrote (5794)4/3/2024 7:15:54 AM
From: Elroy  Read Replies (1) of 5810
 
Interesting. However, I've moved on to different tax issues.

I'm mad at TD because they are doing what I think is incorrect tax accounting in the preparation of the 1099s for MLP options I've exercised.

I had a $2.50 NGL call that cost me $1.50 in premium. I exercised it in late December when NGL was $5.50.

TD says that's a section 1256 contract because NGL is not an equity, it's a publicly traded partnership unit.

TD says the taxable gain on that exercise is (Mark to market value $3 ($5.50 - $2.50) minus premium paid ($1.50) = $1.50 section 1256 profit, just from exercising the call.

TD reports $2.50 purchase price to the partnership, which is similar to a standard equities "cost basis" for these units.

So I buy $5.50 valued units that have a $2.50 basis, and I owe tax on $1.50 section 1256 gain just for buying them?

If I were to immediately sell them on exercise day, I would have another $3 taxable gain from selling units for $5.50 when their basis is $2.50.

I think the section 1256 taxation should be the premium ($1.50) I paid is a section 1256 loss, as the mark to market math should be the (option's mark to market taxable gain ($3) minus the fact that the option has gone to zero value upon exercise (-$3)) minus the premium I pad ($1.50). TD's accounting doesn't take into account that the option has gone to zero value once exercised.

Anyways, how about that!??
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