On June 1, 2012, 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, 2012.On his 2012 tax return, what should Brady report?
A)A $3,000 long-term capital loss.
B)A $3,000 short-term capital loss.
C)A $3,000 § 1231 loss.
D)A $3,000 ordinary loss.
E)None of the above.

Question

Quizplus · Accepted Answer

Since Brady let the option lapse, he did not exercise it and did not acquire the underlying stock. Therefore, the $3,000 premium paid to purchase the option is treated as a short-term capital loss and should be reported on Schedule D of his tax return as a loss.

On June 1, 2012, Brady Purchased an Option to Buy