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Advisor Corner Q&A

How are protective puts taxed?

If your position in the stock is not eligible for long-term capital gains treatment and you purchase a protective put, your holding period is eliminated. Unfortunately, your holding period will not restart until the put is disposed. However, a put purchase will not affect your holding period if either:

  • The stock is already eligible for long-term capital gains treatment
  • The put is “married” to the stock purchase

In either scenario, Qualified Dividend Income (QDI) is forfeited while the put is in place.

We invite you to download a copy of Taxes and Investing and encourage you to review IRS Publication 550.

The Options Institute is known worldwide as the destination for options education. If you are an advisor looking to increase your familiarity with these valuable risk management tools, we invite you to attend The Options Course for Advisors and Planners.

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