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Strategies & Market Trends : Income Taxes and Record Keeping ( tax )
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To: TheNoBoB who wrote (5804)4/4/2024 6:48:15 PM
From: Elroy  Read Replies (1) of 5810
 
Exercised listed call/put options produce stock shares with a cost basis of the shares plus/minus the option premium. Why would MLP units be treated differently?

There is different tax treatment of section 1256 contracts and regular equity options.

TD classifies MLP options as section 1256 contracts.

In exercising a $2.50 MLP call that you paid $1.00 premium to own, you pay $2.50 cash and then you own the units. TD reports to the partnership that you paid $2.50, and that gets added to your capital account.

For an equity call it would be you pay $2.50 to buy the stock and your cost basis is $3.50 (since you paid $1 for the call).

The section 1256 contract is taxed in and of itself, and it's taxation is completely unrelated to the taxation of the underlying MLP.
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