Hello,

Suppose Investco LLC purchases $10,000 in various call options (on various underlying stocks) that will expire within the tax year. Most expire worthless, for a short term loss of $8,000. The remaining $2,000 worth of options purchases are exercised, and the underlying stock (in ABC corp) is held for more than one year.

Can the individual owner of Investco LLC deduct the entire $8,000 against ordinary income, and still expect to pay the reduced capital gains tax rate on any gains for the ABC stock that was held for more than one year?

Thanks in advance,
lukedog

“Can the individual owner of Investco LLC deduct the entire $8,000 against ordinary income, and still expect to pay the reduced capital gains tax rate on any gains for the ABC stock that was held for more than one year?”-------> LLC owners are not referred to as shareholders, but as members. A member’s share of ownership in the LLC is determined by the LLC’s operating agreement or by some other document that outlines each member’s ownership interest. You can recognize a STCL of $8k in the tax year. You net the LTCG/STCL and yo got Net capital loss of $6000;$8K(Net STCL)-$2K(Net LTCG). You can use $3K in the current year assuming you have at least that amount of income , ordinary income; the STCL is offset, on a dollar for dollar basis, against ordinary income for amounts up to $3K in the year. you can carry forward the remaining $3K indefinitely.
In 2008–2012, the tax rate on qualified dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets. After 2012, the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).