Tax question on harvesting losses.

[Nika]

I need clarification on harvesting losses.

I bought 200 shares of stock at $13 a share.

It fell to $11. I bought Sept. option.
It fell further to $8 I bought another Sept. option

Can I now sell the stock at $8 and write off $1,000 of loss against my other gain?

What happens if I exercise my options come September?

I'm not buying back any of the stock for 6 months AFTER I harvest losses.
And all of the options were bought before I sell the stock.

[Nika]

Where is MonkeyMamma when you need her?

[kv968]

You can sell the stock and take the $1000 loss. The losses or gains on the options won't matter until they become realized (bought/sold/expired worthless/exercised).

Now if you were to exercise the option within the wash rule time period and bought back the stock, that may cause some problems but you're not planning on doing that. If you do exercise, the premium you paid for the option would be added to the cost basis of the stock (ex. You bought a $50 call for $1 premium and you eventually exercise. You'd pay $50/share but your cost basis on the stock would be $51)

I'm not a tax expert so hopefully MM will chime in but that's how I see it.

[KTP]

It gets complicated with options but a call option is treated very similar to stock so you should be fine. The complication comes when you have offsetting or hedging positions...say you own 1000 shares of a stock and then buy 10 put options on that stock. You can't take a loss on the shares or the put option before both legs are sold. This does make some sense because you are not at risk on stock movement (the puts will cancel any losses you have in the stock).

The simple answer is you will be fine as long as you don't buy or sell within 30 days of the last transaction on the same security (stock and call options on that stock are considered the same security)

[andyross]

For many investors, tax gain/loss harvesting is the single most important tool for reducing taxes now and in the future. If properly applied, it can save you taxes and help you diversify your portfolio in ways you may not have considered. Although it can't restore your losses, it can certainly soften the blow. For example, a loss in the value of Security A could be sold to offset the increase in value of Security B, thus eliminating the capital gains tax liability of Security B.

[KTP]

Where do these new posters come from when they reply to a topic with a cut and paste from a Wikipedia entry on some general definition?

Someone asks a question on how much water a typical household uses, and these posters reply with: "Water is an essential compound for human life. It is also wet."

What is the point? What do they hope to gain?

[kv968]

Where do these new posters come from when they reply to a topic with a cut and paste from a Wikipedia entry on some general definition?

Someone asks a question on how much water a typical household uses, and these posters reply with: "Water is an essential compound for human life. It is also wet."

What is the point? What do they hope to gain?

Wikipedia (wik-i-pee-dee-ə) is a collaboratively edited, multilingual, free Internet encyclopedia that is supported by the non-profit Wikimedia Foundation. Volunteers worldwide collaboratively write Wikipedia's 30 million articles in 287 languages, including over 4.4 million in the English Wikipedia. Anyone who can access the site can edit almost any of its articles, which on the Internet comprise the largest and most popular general reference work.