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Strategies & Market Trends : Income Taxes and Record Keeping ( tax )
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To: Privately who wrote (5802)4/4/2024 4:33:19 PM
From: Elroy  Read Replies (1) of 5810
 
I'm fairly certain TD's method is wrong, I've asked them to change it. If they decline, I'll report it the way I think correct and I'm again pretty sure the IRS will agree with me.

For a section 1256 contract which does not settle for cash, there's no logical reason to tax "mark to market" gains on exercise unless you offset the gain with an equivalent loss since the option is now worth zero. Most section 1256 contracts settle for cash, so if you exercise you received the difference between the strike price and the index in cash. In that case, paying tax on that received cash makes perfect sense.

For MLPs, which settle for the underlying with a cost basis equal to the strike, it makes no sense to also tax the theoretical but unreceived cash difference between strike and underlying price.
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