Tax Facts

7602 / How do the conversion transaction rules apply in determining how a tax straddle is taxed?

Updated: December 30, 2024 at 08:46 AM
A portion of any gain recognized upon disposition or other termination of a straddle that is part of a conversion transaction (see Q 7615) may be treated as ordinary income. A straddle will be subject to these rules if substantially all of the taxpayer’s expected return from the investment is attributable to the time value of the taxpayer’s net investment in the transaction.1 See Q 7615 and Q 7616 for the definition and tax treatment of conversion transactions.




1.   IRC § 1258(c).


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