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.
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