On June 1,2016,Brady purchased an option to buy 1,000 shares of General,Inc.at $40 per share.He purchased the option for $3,000.It was to remain in effect for five months.The market experienced a decline during the latter part of the year,so Brady decided to let the option lapse as of December 1,2016.On his 2016 tax return,what should Brady report?

Question

Quizplus · Accepted Answer

Since Brady did not exercise his option to buy the shares and instead let it lapse, he incurred a loss of the entire amount spent on the option - $3,000. This loss is considered a short-term capital loss because the option was held for less than one year. Therefore, Brady should report a $3,000 short-term capital loss on his 2016 tax return.

On June 1,2016,Brady Purchased an Option to Buy 1,000 Shares