Guidance & research 104
Final rule 5
- T.D. 9691 2014 Debt That Is a Position in Personal Property That Is Part of a Straddle
- T.D. 9678 2014 Mixed Straddles; Straddle-by-Straddle Identification Under Section 1092
- T.D. 9627 (b)(2)(A)(i)(I) 2013 Mixed Straddles; Straddle-by-Straddle Identification Under Section 1092(b)(2)(A)(i)(I); Correction
- T.D. 9635 (d)(7) 2013 Debt That Is a Position in Personal Property That Is Part of a Straddle
- T.D. 9627 (b)(2)(A)(i)(I) 2013 Mixed Straddles; Straddle-by-Straddle Identification Under Section 1092(b)(2)(A)(i)(I)
Proposed rule 6
- REG-111753-12 2013 Debt That Is a Position in Personal Property That Is Part of a Straddle; Hearing Cancellation
- REG-112815-12 (b)(2)(A)(i)(I) 2013 Mixed Straddles; Straddle-by-Straddle Identification Under Section 1092(b)(2)(A)(i)(I); Correction
- REG-111753-12 2013 Debt That Is a Position in Personal Property That Is Part of a Straddle
- REG-112815-12 (b)(2)(A)(i)(I) 2013 Mixed Straddles; Straddle-by-Straddle Identification Under Section 1092(b)(2)(A)(i)(I)
- REG-105801-00 2001 Capitalization of Interest and Carrying Charges Properly Allocable to Straddles
- FI-21-95 1995 Definition of Personal Property for Purposes of the Straddle Rules; Hearing Cancellation
IRS guidance 11
- Form 6781 2024
- Final Regulations: Qualified Opportunity Zones (TD 9889) 2020
- Rev. Rul. 2002-66 (c)(4)(A) 2002 2002-2 C.B. 812
- T.D. 8590 1995 Dividends Received Deduction; Tax Straddles (Reg. 1.246-5 and 1.1092(d)-2), 60 Fed. Reg. 14636 (March 20, 1995 issue)
- T.D. 8590 (d)(3)(B) 1995 60 Fed. Reg. 14636, final regulations under Treas. Reg. § 1.246-5
- Proposed Regs. 1.246-5 and 1.1092(d)-2 1993 REG FI-22-92, 58 F.R. 30727 (May 27, 1993) (excerpt, 1993-1 C.B. 771)
- FSA 0956 (FSA 1992-1130-4) 1992 Field Service Advice, Nov. 30, 1992
- Rev. Rul. 88-31 1988 1988-1 C.B. 302
- Internal Revenue Cumulative Bulletin 1984-3 1984 Vol. 2 (H. Conf. Rept. 98-861)
- Internal Revenue Cumulative Bulletin 1981-2 1981
- Rev. Proc. 2013-11
Notice 7
- 87 FR 44499 2022 Proposed Collection; Comment Request for Gains and Losses From Section 1256 Contracts and Straddles
- 80 FR 70883 2015 Proposed Collection; Comment Request for Form 6781
- 74 FR 30687 2009 Proposed Collection; Comment Request for Form 6781
- 71 FR 28417 2006 Proposed Collection; Comment Request for Form 6781
- 68 FR 24791 2003 Proposed Collection; Comment Request for Form 6781
- 65 FR 30477 2000 Proposed Collection; Comment Request for Form 6781
- 62 FR 27656 1997 Proposed Collection; Comment Request for Form 6781
Legislation 3
- S. 4331 2026 Modernization of Derivatives Tax Act of 2026
- S. 2621 2021 Modernization of Derivatives Tax Act of 2021
- S. 1005 2017 Modernization of Derivatives Tax Act of 2017
Legislative history 6
- JCS-5-05 (c)(2)(B) 2005 General Explanation of Tax Legislation Enacted in the 108th Congress (JCS-5-05)
- H. Rept. 108-755 2004 American Jobs Creation Act of 2004, Conference Report (H. Rept. 108-755)
- H. Rept. 108-548, Part 1 2004 American Jobs Creation Act of 2004, Report of the Committee on Ways and Means (H. Rept. 108-548, Part 1)
- JCS-23-97 1997 General Explanation of Tax Legislation Enacted in 1997 (JCS-23-97)
- JCS-41-84 (b) 1984 General Explanation of the Revenue Provisions of the Deficit Reduction Act of 1984 (JCS-41-84)
- H. Rept. 98-432, Part 2 (b) 1984 Tax Reform Act of 1984: supplemental report of the Committee on Ways and Means on H.R. 4170 (H. Rept. 98-432, Part 2)
Prior reg text 2
- 26 CFR (2014) (b)(2) 2014 Treatment of holding periods and losses with respect to straddle positions (temporary).
- 26 CFR (2007) (b) 2007 Coordination of loss deferral rules and wash sale rules (temporary).
Research 22
- Sullivan · The Journal of Wealth Management (a)(1)(A) 2026 Listed Option Collars with Margin Loans Are Structurally Inferior to Variable Prepaid Forwards: Character Degradation and Phantom Income
- Fichtenbaum · The Journal of Wealth Management 2026 Prepaid Variable Forward Contracts: McKelvey Postmortem, Common Misunderstandings, and Guidelines for Avoiding Issues
- AQR Capital Management 2026 The Wrapper Illusion: Do Entity Structures Neutralize Tax Anti-Abuse Rules?
- Hemel 2024 The BOXX Anomaly: ETF Tax Enhances Inverted Yield Curve Strategy
- AQR Capital Management 2024 A Brief Guide to Pricing and Taxation of Variable Prepaid Forwards
- Banafsheha 2024 An Introduction to the Taxation of Financial Instruments
- Bouchey 2024 Equity Premium Income ETFs: How much income do you get to keep after taxes?
- Hemel · Tax Notes (c) 2024 The Tax Trap Inside the BOXX
- Sheppard · Tax Notes 2024 BOXX: ETF as Money Market Fund Substitute
- Fichtenbaum 2023 Earning interest rate equivalents in the listed options market
- Bouchey · The Journal of Derivatives 2022 Taxes and Derivatives: An Investor’s Perspective
- McDermott Will & Emery 2020 When Can Bitcoin Positions Be Taxed as Mixed Straddles Subject to the Special Mixed Straddle Rules?
- Fichtenbaum 2016 Straddle Identifications: Making the Best out of a Bad Situation
- Mayer Brown 2014 Do What I Say, Not What I Do: The US Internal Revenue Service Finalizes Changes To The Mixed Straddle Rules - Income Tax - Tax - United States
- miller · The Tax Lawyer 2012 Federal Income Tax Treatment of Hedge Funds, Their Investors, and Their Managers
- Hammer 2012 Tax-Advantaged Investing for an Uncertain Economy
- USIPC 2011 After-Tax Performance Standards
- New York State Bar Association 2011 Report of the Tax Section of the New York State Bar Association on the Taxation of Distressed Debt Report No. 1248
- Paul · The Tax Lawyer 2010 The Taxation of Distressed Debt Investments: Taking Stock
- Warren · Journal of public economics 2004 US income taxation of new financial products
- Land · Tax Law Review 1996 Defeating deferral: a proposal for retrospective taxation
- Guidance and Other Actions Being Considered Regarding Certain Potentially Abusive Investment Fund Strategies Involving Financial Products
Also mentions § 1092 42
- T.D. 10018 2024 Revising Consolidated Return Regulations and Controlled Group of Corporations Regulations to Reflect Statutory Changes, Modernize Language, and Enhance Clarity
- REG-134420-10 2023 Revising Consolidated Return Regulations To Reflect Statutory Changes, Modernize Language, and Enhance Clarity
- T.D. 9945 2021 Guidance Under Section 1061
- REG-107213-18 2020 Guidance Under Section 1061
- T.D. 9889 2020 Investing in Qualified Opportunity Funds
- 84 FR 16760 2019 Proposed Information Collection; Comment Request
- REG-115420-18 2018 Investing in Qualified Opportunity Funds
- REG-107892-18 2018 Qualified Business Income Deduction
- REG-132197-17 2018 Eliminating Unnecessary Tax Regulations
- T.D. 9795 2016 Recognition and Deferral of Section 987 Gain or Loss
- T.D. 9794 2016 Income and Currency Gain or Loss With Respect to a Section 987 QBU
- T.D. 9648 2013 Dividend Equivalents From Sources Within the United States
- T.D. 9616 2013 Basis Reporting by Securities Brokers and Basis Determination for Debt Instruments and Options; Reporting for Premium
- REG-130507-11 2012 Net Investment Income Tax
- 77 FR 60023 2012 Proposed Collection; Comment Request for Information Collection tools
- REG-120282-10 2012 Dividend Equivalents From Sources Within the United States
- T.D. 9504 2010 Basis Reporting by Securities Brokers and Basis Determination for Stock
- T.D. 9328 2007 Safe Harbor for Valuation Under Section 475.
- T.D. 8990 2002 Equity Options With Flexible Terms; Qualified Covered Call Treatment
- T.D. 8985 2002 Hedging Transactions
- REG-115560-99 2001 Equity Options With Flexible Terms; Qualified Covered Call Treatment; Hearing Cancellation
- T.D. 8940 2001 Purchase Price Allocations in Deemed and Actual Asset Acquisitions
- REG-115560-99 2001 Equity Options With Flexible Terms; Qualified Covered Call Treatment
- REG-107047-00 2001 Hedging Transactions
- T.D. 8913 2000 Guidance Under Section 355(d); Recognition of Gain on Certain Distributions of Stock or Securities
- T.D. 8881 2000 Revisions to Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Revisions of Information Reporting Regulations.
- T.D. 8866 2000 Equity Options With Flexible Terms; Special Rules and Definitions
- REG-107069-97 1999 Purchase Price Allocations in Deemed Actual Asset Acquisitions
- REG-106004-98 1999 Guidance Under Section 355(d); Recognition of Gain on Certain Distributions of Stock or Securities
- T.D. 8799 1998 Certain Investment Income Under the Qualifying Income Provisions of Section 7704 and the Application of the Passive Activity Loss Rules to Publicly Traded Partnerships
- REG-104641-97 1998 Equity Options Without Standard Terms; Special Rules and Definitions; Hearing Cancellation
- REG-104641-97 1998 Equity Options Without Standard Terms; Special Rules and Definitions
- T.D. 8734 1997 General Revision of Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Related Collection, Refunds, and Credits; Revision of Information Reporting and Backup Withholding Regulations; and Removal of Regulations Under Part 35a and of Certain Regulations Under Income Tax Treaties
- T.D. 8707 1996 Distribution of Marketable Securities by a Partnership
- T.D. 8674 1996 Debt Instruments With Original Issue Discount; Contingent Payments; Anti-Abuse Rule
- PS-2-95 1996 Distribution of Marketable Securities by a Partnership
- T.D. 8590 1995 Dividends Received Deduction Holding Period Reduced for Periods Where Risk of Loss Diminished
- FR Doc. 94-31433 1994 Netting Rule for Certain Conversion Transactions
- FR Doc. 94-30728 1994 Debt Instruments With Original Issue Discount; Contingent Payments
- FR Doc. 94-16868 1994 Clear Reflection of Income in the Case of Hedging Transactions
- FR Doc. 94-16869 1994 Hedging Transactions by Members of a Consolidated Group
- FR Doc. 94-8488 1994 Consolidated Groups and Controlled GroupsIntercompany Transactions and Related Rules
(a) Recognition of loss in case of straddles, etc.
(1) Limitation on recognition of loss
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(A) In general Any loss with respect to 1 or more positions shall be taken into account for any taxable year only to the extent that the amount of such loss exceeds the unrecognized gain (if any) with respect to 1 or more positions which were offsetting positions with respect to 1 or more positions from which the loss arose.
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(1)(A), (2), substituted “unrecognized gain” for “unrealized gain” and “which were offsetting positions with respect to 1 or more positions from which the loss arose” for “which— (i) were acquired by the taxpayer before the disposition giving rise to such loss, (ii) were offsetting positions with respect to the 1 or more positions from which the loss arose, and (iii) were not part of an identified straddle as of the close of the taxable year”.
Research 1
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(B) Carryover of loss Any loss which may not be taken into account under subparagraph (A) for any taxable year shall, subject to the limitations under subparagraph (A), be treated as sustained in the succeeding taxable year.
Research 1
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(2) Special rule for identified straddles
Amended 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135 added subpar. (C) and struck out concluding provisions of subpar. (B) which read as follows: “The Secretary shall prescribe regulations which specify the proper methods for clearly identifying a straddle as an identified straddle (and the positions comprising such straddle), which specify the rules for the application of this section for a taxpayer which fails to properly identify the positions of an identified straddle, and which specify the ordering rules in cases where a taxpayer disposes of less than an entire position which is part of an identified straddle.”
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(A) In general In the case of any straddle which is an identified straddle—
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(1), reenacted heading without change and amended text of subpar. (A) generally. Prior to amendment, text read as follows: “In the case of any straddle which is an identified straddle as of the close of any taxable year—
“(i) paragraph (1) shall not apply for such taxable year, and
“(ii) any loss with respect to such straddle shall be treated as sustained not earlier than the day on which all of the positions making up the straddle are disposed of.”
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(i) paragraph (1) shall not apply with respect to positions comprising the identified straddle,
Amended 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(2)(B)(i), substituted “positions” for “identified positions”.
Research 1
(ii) if there is any loss with respect to any position of the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased by an amount which bears the same ratio to the loss as the unrecognized gain with respect to such offsetting position bears to the aggregate unrecognized gain with respect to all such offsetting positions,
Amended 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(2)(B)(ii), (iii), substituted “any position” for “any identified position” and “the offsetting positions” for “the identified offsetting positions”.
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(1), struck out “and” at end.
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(iii) if the application of clause (ii) does not result in an increase in the basis of any offsetting position in the identified straddle, the basis of each of the offsetting positions in the identified straddle shall be increased in a manner which—
(I) is reasonable, consistent with the purposes of this paragraph, and consistently applied by the taxpayer, and
“Reasonable” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
(II) results in an aggregate increase in the basis of such offsetting positions which is equal to the loss described in clause (ii), and
Amended 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(1), added cl. (iii) and redesignated former cl. (iii) as (iv).
Research 1
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(iv) any loss described in clause (ii) shall not otherwise be taken into account for purposes of this title.
Amended 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(1), added cl. (iii) and redesignated former cl. (iii) as (iv).
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(B) Identified straddle The term “identified straddle” means any straddle—
(i) which is clearly identified on the taxpayer’s records as an identified straddle before the earlier of—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 107(a), designated existing provisions as subcl. (I) and added subcl. (II).
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(II) such time as the Secretary may prescribe by regulations.
(ii) to the extent provided by regulations, the value of each position of which (in the hands of the taxpayer immediately before the creation of the straddle) is not less than the basis of such position in the hands of the taxpayer at the time the straddle is created, and
“To the extent provided by regulations” leaves this to Treasury. No regulation cites this provision (eCFR, Oct 19, 2026)
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(2)(A), added cl. (ii) and struck out former cl. (ii) which read as follows: “all of the original positions of which (as identified by the taxpayer) are acquired on the same day and with respect to which—
“(I) all of such positions are disposed of on the same day during the taxable year, or
“(II) none of such positions has been disposed of as of the close of the taxable year, and”.
A straddle shall be treated as clearly identified for purposes of clause (i) only if such identification includes an identification of the positions in the straddle which are offsetting with respect to other positions in the straddle.
Amended 2004, 2007, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(170), substituted “with respect to other” for “with respect other” in concluding provisions.
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(2)(A), inserted concluding provisions.
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(2)(B), inserted concluding provisions.
Research 1
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(C) Application to liabilities and obligations Except as otherwise provided by the Secretary, rules similar to the rules of clauses (ii) and (iii) of subparagraph (A) shall apply for purposes of this paragraph with respect to any position which is, or has been, a liability or obligation.
Amended 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(3), (4), added subpar. (C), redesignated former subpar. (C) as (D), and inserted “the rules for the application of this section to a position which is or has been a liability or obligation, methods of loss allocation which satisfy the requirements of subparagraph (A)(iii),” before “and the ordering rules” in subpar. (D).
(D) Regulations The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations or other guidance may specify the proper methods for clearly identifying a straddle as an identified straddle (and for identifying the positions comprising such straddle), the rules for the application of this section to a taxpayer which fails to comply with those identification requirements, the rules for the application of this section to a position which is or has been a liability or obligation, methods of loss allocation which satisfy the requirements of subparagraph (A)(iii), and the ordering rules in cases where a taxpayer disposes (or otherwise ceases to be the holder) of any part of any position which is part of an identified straddle.
Amended 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(3), (4), added subpar. (C), redesignated former subpar. (C) as (D), and inserted “the rules for the application of this section to a position which is or has been a liability or obligation, methods of loss allocation which satisfy the requirements of subparagraph (A)(iii),” before “and the ordering rules” in subpar. (D).
Research 1
(3) Unrecognized gain For purposes of this subsection—
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(1)(B), substituted “Unrecognized gain” for “Unrealized gain” in heading.
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(A) In general The term “unrecognized gain” means—
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(1)(B), substituted “unrecognized gain” for “unrealized gain” as term defined, designated existing definition as cl. (i), and added cl. (ii).
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(B) Special rule for identified straddles For purposes of paragraph (2)(A)(ii), the unrecognized gain with respect to any offsetting position shall be the excess of the fair market value of the position at the time of the determination over the fair market value of the position at the time the taxpayer identified the position as a position in an identified straddle.
Amended 1983, 1999, 2004, 2007
- 2007 Pub. L. 110-172 Pub. L. 110–172, § 7(d)(2)(C), substituted “offsetting position” for “identified offsetting position”.
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(3), added subpar. (B) and redesignated former subpar. (B) as (C).
- 1999 Pub. L. 106-170 Pub. L. 106–170 substituted “1221(a)” for “1221”.
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(1)(C), substituted “with respect to which, as of the close of the taxable year, there is unrecognized gain, and” for “which is held by such taxpayer as of the close of the taxable year and with respect to which there is unrealized gain, and”.
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(1)(C), substituted “unrecognized gain” for “unrealized gain”.
(C) Reporting of gain
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(3), added subpar. (B) and redesignated former subpar. (B) as (C).
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(i) In general Each taxpayer shall disclose to the Secretary, at such time and in such manner and form as the Secretary may prescribe by regulations—
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(I) each position (whether or not part of a straddle) with respect to which, as of the close of the taxable year, there is unrecognized gain, and
(II) the amount of such unrecognized gain.
(ii) Reports not required in certain cases Clause (i) shall not apply—
(II) to any position which, with respect to the taxpayer, is property described in paragraph (1) or (2) of section 1221(a) or to any position which is part of a hedging transaction (as defined in section 1256(e)), or
Research 1
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(III) with respect to any taxable year if no loss on a position (including a regulated futures contract) has been sustained during such taxable year or if the only loss sustained on such position is a loss described in subclause (II).
(b) Regulations
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 103(a), amended subsec. (b) generally, substituting provisions dealing with regulations for provisions dealing with character of gain or loss and wash sales.
Research 1
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(1) In general The Secretary shall prescribe such regulations with respect to gain or loss on positions which are a part of a straddle as may be appropriate to carry out the purposes of this section and section 263(g). To the extent consistent with such purposes, such regulations shall include rules applying the principles of subsections (a) and (d) of section 1091 and of subsections (b) and (d) of section 1233.
Research 1
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(2) Regulations relating to mixed straddles
Research 1
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(A) Elective provisions in lieu of section 1233(d) principles The regulations prescribed under paragraph (1) shall provide that—
(i) the taxpayer may offset gains and losses from positions which are part of mixed straddles—
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(I) by straddle-by-straddle identification, or
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(II) by the establishment (with respect to any class of activities) of a mixed straddle account for which gains and losses would be recognized (and offset) on a periodic basis,
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(ii) such offsetting will occur before the application of section 1256, and section 1256(a)(3) will only apply to net gain or net loss attributable to section 1256 contracts, and
(iii) the principles of section 1233(d) shall not apply with respect to any straddle identified under clause (i)(I) or part of an account established under clause (i)(II).
(B) Limitation on net gain or net loss from mixed straddle account In the case of any mixed straddle account referred to in subparagraph (A)(i)(II)—
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(i) Not more than 50 percent of net gain may be treated as long-term capital gain In no event shall more than 50 percent of the net gain from such account for any taxable year be treated as long-term capital gain.
(ii) Not more than 40 percent of net loss may be treated as short-term capital loss In no event shall more than 40 percent of the net loss from such account for any taxable year be treated as short-term capital loss.
(C) Authority to treat certain positions as mixed straddles The regulations prescribed under paragraph (1) may treat as a mixed straddle positions not described in section 1256(d)(4).
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(D) Timing and character authority The regulations prescribed under paragraph (1) shall include regulations relating to the timing and character of gains and losses in case of straddles where at least 1 position is ordinary and at least 1 position is capital.
Amended 1988
- 1988 Pub. L. 100-647 Pub. L. 100–647 added subpar. (D).
Research 1
(c) Straddle defined For purposes of this section—
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Cases: DeMartino v. Commissioner, 88 T.C. 583 (1987); Leslie v. Commissioner, 146 F.3d 643 (9th Cir. 1998)
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(1) In general The term “straddle” means offsetting positions with respect to personal property.
Research 1
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(2) Offsetting positions
Amended 1983, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(4), redesignated subpar. (C) as (B) and struck out heading and text of former subpar. (B). Text read as follows: “If 1 or more positions offset only a portion of 1 or more other positions, the Secretary shall by regulations prescribe the method for determining the portion of such other positions which is to be taken into account for purposes of this section.”
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(4), substituted “subsection (a)(2)(B)” for “subsection (a)(3)(B)”.
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(A) In general A taxpayer holds offsetting positions with respect to personal property if there is a substantial diminution of the taxpayer’s risk of loss from holding any position with respect to personal property by reason of his holding 1 or more other positions with respect to personal property (whether or not of the same kind).
“Substantial” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
UNLESS § 1092(c)(2)(B)
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(B) Special rule for identified straddles In the case of any position which is not part of an identified straddle (within the meaning of subsection (a)(2)(B)), such position shall not be treated as offsetting with respect to any position which is part of an identified straddle.
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(a)(4), redesignated subpar. (C) as (B) and struck out heading and text of former subpar. (B). Text read as follows: “If 1 or more positions offset only a portion of 1 or more other positions, the Secretary shall by regulations prescribe the method for determining the portion of such other positions which is to be taken into account for purposes of this section.”
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(3) Presumption
(A) In general For purposes of paragraph (2), 2 or more positions shall be presumed to be offsetting if—
(i) the positions are in the same personal property (whether established in such property or a contract for such property),
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(ii) the positions are in the same personal property, even though such property may be in a substantially altered form,
“Substantially” implies facts and circumstances. No regulation cites this provision (eCFR, Oct 19, 2026)
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(iii) the positions are in debt instruments of a similar maturity or other debt instruments described in regulations prescribed by the Secretary,
“In regulations prescribed by the Secretary” leaves this to Treasury. No regulation cites this provision (eCFR, Oct 19, 2026)
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(iv) the positions are sold or marketed as offsetting positions (whether or not such positions are called a straddle, spread, butterfly, or any similar name),
(v) the aggregate margin requirement for such positions is lower than the sum of the margin requirements for each such position (if held separately), or
(vi) there are such other factors (or satisfaction of subjective or objective tests) as the Secretary may by regulations prescribe as indicating that such positions are offsetting.
“As the Secretary may by regulations prescribe” leaves this to Treasury. No regulation cites this provision (eCFR, Oct 19, 2026)
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For purposes of the preceding sentence, 2 or more positions shall be treated as described in clause (i), (ii), (iii), or (vi) only if the value of 1 or more of such positions ordinarily varies inversely with the value of 1 or more other such positions.
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(B) Presumption may be rebutted Any presumption established pursuant to subparagraph (A) may be rebutted.
(4) Exception for certain straddles consisting of qualified covered call options and the optioned stock
(A) In general If—
Subparagraph (A) also applies for the rest of § 1092 and for § 263(g); (E) turns it off only for § 1092(a), so this gate tracks § 1092(a)
(i) all the offsetting positions making up any straddle consist of 1 or more qualified covered call options and the stock to be purchased from the taxpayer under such options, and needs § 1092(c)(4)(B)
such straddle shall not be treated as a straddle for purposes of this section and section 263(g).
UNLESS § 1092(c)(4)(E)
(B) Qualified covered call option defined For purposes of subparagraph (A), the term “qualified covered call option” means any option granted by the taxpayer to purchase stock held by the taxpayer (or stock acquired by the taxpayer in connection with the granting of the option) but only if—
(i) such option is traded on a national securities exchange which is registered with the Securities and Exchange Commission or other market which the Secretary determines has rules adequate to carry out the purposes of this paragraph,
“Which the Secretary determines” leaves this to Treasury. Cited by Reg. § 1.1092(c)-3(a), Reg. § 1.1092(c)-3(b)
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(ii) such option is granted more than 30 days before the day on which the option expires,
(iii) such option is not a deep-in-the-money option,
(iv) such option is not granted by an options dealer (within the meaning of section 1256(g)(8)) in connection with his activity of dealing in options, and
(v) gain or loss with respect to such option is not ordinary income or loss.
Research 1
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(C) Deep-in-the-money option For purposes of subparagraph (B), the term “deep-in-the-money option” means an option having a strike price lower than the lowest qualified bench mark.
Research 1
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(D) Lowest qualified bench mark
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(i) In general Except as otherwise provided in this subparagraph, for purposes of subparagraph (C), the term “lowest qualified bench mark” means the highest available strike price which is less than the applicable stock price.
(ii) Special rule where option is for period more than 90 days and strike price exceeds $50 In the case of an option—
(I) which is granted more than 90 days before the date on which such option expires, and
(II) with respect to which the strike price is more than $50,
the lowest qualified bench mark is the second highest available strike price which is less than the applicable stock price.
(iii) 85 percent rule where applicable stock price $25 or less If—
(I) the applicable stock price is $25 or less, and
(II) but for this clause, the lowest qualified bench mark would be less than 85 percent of the applicable stock price,
the lowest qualified bench mark shall be treated as equal to 85 percent of the applicable stock price.
(iv) Limitation where applicable stock price $150 or less If—
(I) the applicable stock price is $150 or less, and
(II) but for this clause, the lowest qualified bench mark would be less than the applicable stock price reduced by $10,
the lowest qualified bench mark shall be treated as equal to the applicable stock price reduced by $10.
(E) Special year-end rule Subparagraph (A) shall not apply to any straddle for purposes of section 1092(a) if—
(i) the qualified covered call options referred to in such subparagraph are closed or the stock is disposed of at a loss during any taxable year,
(ii) gain on disposition of the stock to be purchased from the taxpayer under such options or gains on such options are includible in gross income for a later taxable year, and
(iii) such stock or option was not held by the taxpayer for 30 days or more after the closing of such options or the disposition of such stock.
For purposes of the preceding sentence, the rules of paragraphs (3) and (4) of section 246(c) shall apply in determining the period for which the taxpayer holds the stock.
Amended 1986, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141, § 401(a)(171), struck out “(other than subparagraph (B) thereof)” after “paragraphs (3)” in concluding provisions.
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 331(a), in cl. (i), inserted “or the stock is disposed of at a loss”, in cl. (ii), substituted “or gains on such options are” for “is”, and in cl. (iii), inserted “or option” and “or the disposition of such stock”.
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(F) Strike price For purposes of this paragraph, the term “strike price” means the price at which the option is exercisable.
(G) Applicable stock price For purposes of subparagraph (D), the term “applicable stock price” means, with respect to any stock for which an option has been granted—
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(i) the closing price of such stock on the most recent day on which such stock was traded before the date on which such option was granted, or
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(ii) the opening price of such stock on the day on which such option was granted, but only if such price is greater than 110 percent of the price determined under clause (i).
(H) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Such regulations may include modifications to the provisions of this paragraph which are appropriate to take account of changes in the practices of option exchanges or to prevent the use of options for tax avoidance purposes.
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(d) Definitions and special rules For purposes of this section—
(1) Personal property The term “personal property” means any personal property of a type which is actively traded.
An established financial market is enough, Reg. § 1.1092(d)-1(a)
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(b)(1), struck out “(other than stock)” before “of a type”.
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Cases: Rivera v. Commissioner, 89 T.C. 343 (1987)
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(2) Position The term “position” means an interest (including a futures or forward contract or option) in personal property.
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(a)(1), redesignated former subpar. (A) as entire par. (2), and struck out former subpar. (B) which provided that “position” includes any stock option which is a part of a straddle and which is an option to buy or sell stock which is actively traded, but does not include a stock option which (i) is traded on a domestic exchange or on a similar foreign exchange designated by the Secretary, and (ii) is of a type with respect to which the maximum period during which such option may be exercised is less than the minimum period for which a capital asset must be held for gain to be treated as long-term capital gain under section 1222(3).
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(3) Special rules for stock For purposes of paragraph (1)—
(A) In general In the case of stock, the term “personal property” includes stock only if—
(i) such stock is of a type which is actively traded and at least 1 of the positions offsetting such stock is a position with respect to such stock or substantially similar or related property, or
“Substantially similar or related property” is defined in Reg. § 1.1092(d)-2(a).
“Substantially similar or related property” is defined in Reg. § 1.1092(d)-2(a).
An established financial market is enough, Reg. § 1.1092(d)-1(a)
“Substantially similar or related property” is defined in Reg. § 1.1092(d)-2(a).
Reg. § 1.1092(d)-2(a), written in 1995 for former § 1092(d)(3)(B), defines the term by Reg. § 1.246-5 (other than (b)(3)) and adds “(other than stock)”, words the current clause lacks
(ii) such stock is of a corporation formed or availed of to take positions in personal property which offset positions taken by any shareholder.
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Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1808(c), inserted at end “The preceding sentence shall not apply to any interest in stock.”
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(B) Rule for application For purposes of determining whether subsection (e) applies to any transaction with respect to stock described in subparagraph (A)(ii), all includible corporations of an affiliated group (within the meaning of section 1504(a)) shall be treated as 1 taxpayer.
Amended 2000
- 2000 Pub. L. 106-554 Pub. L. 106–554 added subcl. (II) and redesignated former subcl. (II) as (III).
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Amended 1984, 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(c)(1), reenacted heading without change and amended text of par. (3) generally, substituting provisions directing that the term “personal property” includes stock only if it is of a certain type or of a certain type of corporation and setting forth rule for application of subsec. (e), for provisions directing that the term “personal property” includes any stock which is part of a straddle at least 1 of the offsetting positions of which is an option, a securities futures contract, or a position with respect to substantially similar or related property (other than stock), and of a certain type of corporation, and setting forth special rules relating to application of subsecs. (c), (d)(4), and (e).
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), added par. (3) and redesignated former pars. (3) and (4) as (4) and (5), respectively.
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(4) Positions held by related persons, etc.
Amended 1983, 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), added par. (3) and redesignated former pars. (3) and (4) as (4) and (5), respectively.
- 1983 Pub. L. 97-448 Pub. L. 97–448, § 105(a)(3), substituted “a straddle at least 1 (but not all) of the positions of which are regulated futures contracts, the provisions of this section shall apply” for “a straddle— (A) at lease 1 (but not all) of the positions of which are regulated futures contracts, and (B) with respect to which the taxpayer has elected not to have the provisions of section 1256 apply, the provisions of this section shall apply”.
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(A) In general In determining whether 2 or more positions are offsetting, the taxpayer shall be treated as holding any position held by a related person.
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(B) Related person For purposes of subparagraph (A), a person is a related person to the taxpayer if with respect to any period during which a position is held by such person, such person—
(i) is the spouse of the taxpayer, or
(ii) files a consolidated return (within the meaning of section 1501) with the taxpayer for any taxable year which includes a portion of such period.
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(C) Certain flowthrough entities If part or all of the gain or loss with respect to a position held by a partnership, trust, or other entity would properly be taken into account for purposes of this chapter by a taxpayer, then, except to the extent otherwise provided in regulations, such position shall be treated as held by the taxpayer.
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(5) Special rule for section 1256 contracts
Amended 1984, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(66), amended directory language of section 101(b)(2) of Pub. L. 98–369 to clarify general amendment by sections 101(d) and 102(e) of Pub. L. 98–369. See 1984 Amendment notes below.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(d), amended par. (4) generally, substituting provisions relating to special rules for section 1256 contracts for provisions relating to special rules for regulated futures contracts.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), redesignated former par. (4) as (5). Former par. (5) redesignated (6).
(A) General rule In the case of a straddle at least 1 (but not all) of the positions of which are section 1256 contracts, the provisions of this section shall apply to any section 1256 contract and any other position making up such straddle.
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(B) Special rule for identified straddles For purposes of subsection (a)(2) (relating to identified straddles), subparagraph (A) and section 1256(a)(4) shall not apply to a straddle all of the offsetting positions of which consist of section 1256 contracts.
(6) Section 1256 contract The term “section 1256 contract” has the meaning given such term by section 1256(b).
Amended 1984, 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1899A(66), amended directory language of section 101(b)(2) of Pub. L. 98–369 to clarify general amendment by sections 101(d) and 102(e) of Pub. L. 98–369. See 1984 Amendment notes below.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 102(e)(2), amended par. (5) generally, substituting references to section 1256 contracts for references to regulated futures contracts wherever appearing in heading and text.
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(b)(2), as amended by Pub. L. 99–514, § 1899A(66), redesignated former par. (5) as (6).
(7) Special rules for foreign currency
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1261(b), added par. (7).
(A) Position to include interest in certain debt For purposes of paragraph (2), an obligor’s interest in a nonfunctional currency denominated debt obligation is treated as a position in the nonfunctional currency.
(B) Actively traded requirement For purposes of paragraph (1), foreign currency for which there is an active interbank market is presumed to be actively traded.
(8) Special rules for physically settled positions For purposes of subsection (a), if a taxpayer settles a position which is part of a straddle by delivering property to which the position relates (and such position, if terminated, would result in a realization of a loss), then such taxpayer shall be treated as if such taxpayer—
Amended 2004
- 2004 Pub. L. 108-357 Pub. L. 108–357, § 888(b), added par. (8).
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(B) sold the property so delivered by the taxpayer at its fair market value.
(e) Exception for hedging transactions This section shall not apply in the case of any hedging transaction (as defined in section 1256(e)).
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(f) Treatment of gain or loss and suspension of holding period where taxpayer grantor of qualified covered call option If a taxpayer holds any stock and grants a qualified covered call option to purchase such stock with a strike price less than the applicable stock price—
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(c), added subsec. (f) and redesignated former subsec. (f) as (g).
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(1) Treatment of loss Any loss with respect to such option shall be treated as long-term capital loss if, at the time such loss is realized, gain on the sale or exchange of such stock would be treated as long-term capital gain.
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(2) Suspension of holding period The holding period of such stock shall not include any period during which the taxpayer is the grantor of such option.
Amended 1997
- 1997 Pub. L. 105-34 Pub. L. 105–34 substituted “The” for “Except for purposes of section 851(b)(3), the”.
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(g) Cross reference For provision requiring capitalization of certain interest and carrying charges where there is a straddle, see section 263(g).
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369, § 101(c), added subsec. (f) and redesignated former subsec. (f) as (g).