30.4 Stock Rights
The tax consequences of the receipt of stock rights are discussed at 4.6. The following is an explanation of how to treat the sale, exercise, or expiration of nontaxable stock rights. The basis of taxable rights is their fair market value at the time of distribution.
Expiration of nontaxable distributed stock rights.
When you allow nontaxable rights to expire, you do not have a deductible loss; you have no basis in the rights.
Sale of nontaxable distributed stock rights.
If you sell stock rights distributed on your stock, you treat the sale as the sale of a capital asset. The holding period begins from the date you acquired the original stock on which the rights were distributed.
Purchased rights.
If you buy stock rights, your holding period starts the day after the date of the purchase. Your basis for the rights is the price paid; this basis is used in computing your capital gain or loss on the sale.
If you allow purchased rights to expire without sale or exercise, you realize a capital loss. The rights are treated as having been sold on the day of expiration. When purchased rights become worthless during the year prior to the year they lapse, you have a capital loss that is treated as having occurred on the last day of the year in which they became worthless.
Planning Reminder
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