Investopedia

Continue to Site »

Constructive Sale Rule - Section 1259

Filed Under » , , , , ,
Dictionary Says

Definition of 'Constructive Sale Rule - Section 1259'

A section of the Internal Revenue Code that expands the types of transactions that are considered to be sales and are subject to capital gains tax. According to this rule, transactions that effectively take an offsetting position to an already owned position are considered to be constructive sales. The purpose of the constructive sale rule is to prevent investors from locking in investment gains without paying capital gains and to limit their ability to transfer gains from one tax period to another.

This rule is Section 1259 of the Code. It is also referred to as "Constructive Sales Treatment for Appreciated Financial Positions".
Investopedia Says

Investopedia explains 'Constructive Sale Rule - Section 1259'

This rule was introduced by Congress in 1997. Transactions considered to be constructive sales include making short sales against similar or identical positions (known as "short sales against the box"), and entering into futures or forward contracts that call for the delivery of an already-held asset.

There are some exceptions to the rule that remove the need to pay capital gains. For example, if the transaction is closed prior to 30 days after the end of the year in which the gain was achieved, or if the original position is held for 60 days after the offsetting position is closed, then no capital gains tax will be incurred.

Articles Of Interest

  1.

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.

  2. Selling Losing Securities For A Tax Advantage

    Tax-loss harvesting can help you to reduce taxes on your portfolio gains, but make sure you know the rules!

  3. Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.

  4. Has Income Tax Become A Class Tax On The Poor?

    With more than 33% of American families falling close to the poverty line despite their adult members holding full-time employment, a rising number of citizens are being forced to pay a rate ...

  5. Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.

  6. Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.

  7. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  8. How The 2014 Obama Budget Could Affect Your Finances

    Depending on which estimate you believe, Obama's proposed budget would raise the tax bill of a household with a yearly income of $50,000 to $75,000 between $63 and $100 per year. However, that’s ...

  9. Austerity: When The Government Tightens Its Belt

    When a government tightens its belt in tough economic times the entire nation feels the squeeze.

  10. How To Deduct Your Job Search Expenses

    With approximately 12 million Americans out of a job right now, many people are spending significant dollars to be noticed by potential employers. Fortunately, some of these job-search costs ...
comments powered by Disqus
Marketplace
Hot Definitions

  1. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  2. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.

  3. Pattern Day Trader

    An SEC designation for traders who trade the same security four or more times per day (buys and sells) over a five-day period, and for whom same-day trades make up at least 6% of their activity for that period.

  4. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  5. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  6. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.
Trading Center