Consider a situation where an investor owns a stock for over a year and sells calls against it that expire in about 90 days. You can assume that this is a qualified covered call for tax purposes.
After some time, the calls are deep in the money and the investor is about to get assigned on the calls. If assigned on the calls he will have a 10K long term capital gain. If he buys the calls back he will have a 5K short term loss. If he just sells the stock he will have a 15K long term capital gain. Assuming the investor already has other short term capital gains then from a tax point of view he is better off buying back the calls and selling the stock out right.
Do I have that right? I am also assuming that since he was short the call option for less than a year the loss in the calls would be considered short term. Is that right?
I posted this question about 5 years ago. Here is a link to the original question: The old question
Five years ago, I was told (and I believe correctly so) that the repurchase of the option would generate a long term loss not the short term loss that I am looking for. However, looking at the latest version of pub 550 the wording has changed. Therefore I am thinking the tax code has changed and now it is a short term gain. Is it?