Question

What is a strategy that may be employed to minimize the effect of Sec. 1259?

Answer 1

Section 1259 addresses the Constructive sale rule. The main reason for enacting section 1259 was to plug the loopholes. It was mainly related to preventing investors from locking in their investment gains without paying capital gains tax and also limit them from transferring their gains from one tax period to another.

There are certain exceptions to this rule which can be used to form a strategy to minimize the effect of section 1259, 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.