I understand the reason for this tax provision but I do not understand the mechanics of it. The mechanics are presented here: (Level III Volume 2 Behavioral Finance, Individual Investors, and Institutional Investors , 4th Edition. Pearson Learning Solutions p. 280). Can someone explain it with an example, please? Thanks.
any comments, anyone?
If you undertake certain strategies with your existing position in the stock, the stock is considered “sold” for tax purposes and you will have to pay taxes on the gain.
the certain strategies refer to the use of derivatives to sellthe position without actaully selling the underlying.