The consequence would be Capital Gain or Loss.
What is capital gain?
- When a capital asset is sold, its value increases, and this is referred to as a capital gain.
- Simply put, a capital gain happens when you sell an asset for more money than you paid for it initially.
- Almost every item you hold, whether it was bought for personal use or as an investment (such as a stock, bond, or piece of real estate), is a capital asset (like furniture or a boat).
- When you sell an asset, you can realize capital gains by deducting the purchase price from the sale price. In certain situations, the Internal Revenue Service (IRS) taxes individuals on capital gains.
The investor opens with a vertical (price) spread. If he closes out one of the legs of the spread, he has a capital gain or loss for tax purposes as of the closing trade date.
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