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. He wants to close his position. If he does nothing, he will be assigned on the calls he will have a 10K long term capital gain. Another option is to buy back the calls and then sell the stock out right. Buying back the option will generate a 5K capital loss. Selling the stock will generate a 15K long term capital gain. He has other short term gains he would like to offset. Will the purchase of the option be a short term capital loss or a long term capital loss? Has there been any changes in this area of the tax code in the last five years?