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Publication 550


Accrual method:(p73)
An accounting method under which you report your income when you earn it, whether or not you have received it. You generally deduct your expenses when you incur a liability for them, rather than when you pay them.
At-risk rules:(p73)
Rules that limit the amount of loss you may deduct to the amount you risk losing in the activity.
Basis is the amount of your investment in property for tax purposes. The basis of property you buy is usually the cost. Basis is used to figure gain or loss on the sale or disposition of investment property.
Below-market loan:(p73)
A demand loan (defined later) on which interest is payable at a rate below the applicable federal rate, or a term loan where the amount loaned is more than the present value of all payments due under the loan.
An option that entitles the purchaser to buy, at any time before a specified future date, property such as a stated number of shares of stock at a specified price.
Cash method:(p73)
An accounting method under which you report your income in the year in which you actually or constructively receive it. You generally deduct your expenses in the year you pay them.
Commodities trader:(p73)
A person who is actively engaged in trading section 1256 contracts and is registered with a domestic board of trade designated as a contract market by the Commodities Futures Trading Commission.
Commodity future:(p73)
A contract made on a commodity exchange, calling for the sale or purchase of a fixed amount of a commodity at a future date for a fixed price.
Covered security:(p73)
For purposes of Form 1099-B, a covered security is any of the following:
  • Stock you acquired after 2010 (generally after 2011 if in a mutual fund or other regulated investment company, or acquired through a dividend reinvestment plan).
  • Certain stock held in a mutual fund or in connection with a dividend reinvestment plan for which a single-account election is in effect.
  • Certain debt instruments you acquired after 2013.
  • Certain options, warrants, and stock rights you granted or acquired for cash after 2013.
  • A securities futures contract you entered into after 2013.
A "specified security" is any of the following:
  • A share of stock (or any interest treated as stock, such as an American Depositary Receipt) in an entity organized as, or treated for federal tax purposes as, a corporation (foreign or domestic). For this purpose, a security classified as stock by the issuer is treated as stock. If the issuer has not classified the security, the security is not treated as stock unless the broker knows that the security is reasonably classified as stock under general federal tax principles.
  • Any debt instrument, other than a debt instrument subject to section 1272(a)(6) (certain interests in or mortgages held by a REMIC, certain other debt instruments with payments subject to acceleration, and pools of debt instruments the yield on which may be affected by prepayments), or any debt instrument which has a fixed maturity date not more than one year from the date of issue. For this purpose, a security classified as debt by the issuer is treated as debt. If the issuer has not classified the security, the security is not treated as debt unless the broker knows that the security is reasonably classified as debt under general federal tax principles or that the instrument or position is treated as a debt instrument under a specific provision of the Internal Revenue Code.
  • Any option on one or more specified securities (which includes an index substantially all of the components of which are specified securities), any option on financial attributes of specified securities, or a warrant or stock right.
  • Any securities futures contract.
See the Instructions for Form 1099-B for more details.
Conversion transaction:(p73)
Any transaction that you entered into after April 30, 1993, that meets both of these tests.
  1. Substantially all of your expected return from the transaction is due to the time value of your net investment.
  2. The transaction is one of the following.
    1. A straddle, including any set of offsetting positions on stock.
    2. Any transaction in which you acquire property (whether or not actively traded) at substantially the same time that you contract to sell the same property or substantially identical property at a price set in the contract.
    3. Any other transaction that is marketed or sold as producing capital gains from a transaction described in (1).
Demand loan:(p73)
A loan payable in full at any time upon demand by the lender.
A distribution of money or other property made by a corporation to its shareholders out of its earnings and profits.
Equity option:(p73)
Any option:
  • To buy or sell stock, or
  • That is valued directly or indirectly by reference to any stock or narrow-based security index.
Fair market value:(p73)
The price at which property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.
Forgone interest:(p73)
The amount of interest that would be payable for any period if interest accrued at the applicable federal rate and was payable annually on December 31, minus any interest payable on the loan for that period.
Forward contract:(p73)
A contract to deliver a substantially fixed amount of property (including cash) for a substantially fixed price.
Futures contract:(p73)
An exchange-traded contract to buy or sell a specified commodity or financial instrument at a specified price at a specified future date. See also Commodity future.
Gift loan:(p73)
Any below-market loan where the forgone interest is in the nature of a gift.
Compensation for the use or forbearance of money.
Investment interest:(p73)
The interest you paid or accrued on money you borrowed that is allocable to property held for investment.
Limited partner:(p73)
A partner whose participation in partnership activities is restricted, and whose personal liability for partnership debts is limited to the amount of money or other property that he or she contributed or may have to contribute.
Listed option:(p73)
Any option that is traded on, or subject to the rules of, a qualified board or exchange.
Marked-to-market rule:(p73)
The treatment of each section 1256 contract (defined later) held by a taxpayer at the close of the year as if it were sold for its fair market value on the last business day of the year.
Market discount:(p73)
The stated redemption price of a bond at maturity minus your basis in the bond immediately after you acquire it. Market discount arises when the value of a debt obligation decreases after its issue date.
Market discount bond:(p73)
Any bond having market discount except:
  • Short-term obligations with fixed maturity dates of up to 1 year from the date of issue,
  • Tax-exempt obligations that you bought before May 1, 1993,
  • U.S. savings bonds, and
  • Certain installment obligations.
Mutual fund:(p73)
A mutual fund is a regulated investment company generally created by "pooling" funds of investors to allow them to take advantage of diversity of investments and professional management.
A person who receives, in his or her name, income that actually belongs to someone else.
Noncovered security:(p73)
A noncovered security, for purposes of Form 1099-B, is any security that is not a covered security. The following securities are not covered securities:
  • Stock acquired in 2011 that is transferred in 2011 to a dividend reinvestment plan that meets the requirements of Regulations section 1.1012-1(e)(6). However, a covered security acquired in 2011 and transferred to a dividend reinvestment plan after 2011 remains a covered security. For purposes of this rule, stock is considered transferred to a dividend reinvestment plan if it is held in a plan that is not a dividend reinvestment plan and the plan amends its plan documents to become a dividend reinvestment plan. The stock is considered transferred as of the effective date of the plan amendments.
  • A security acquired due to a stock dividend, stock split, reorganization, redemption, stock conversion, recapitalization, corporate division, or other similar action, if the basis of the acquired security is determined from the basis of a noncovered security.
  • A security that, when acquired, did not have to be reported on Form 1099-B because it was acquired from an exempt recipient or an exempt foreign person as defined in Regulations section 1.6045-1(g)(1).
  • A security for which reporting is required by Regulations section 1.6049-5(d)(3)(ii) (certain securities owned by a foreign intermediary or flow-through entity).
  • A debt instrument acquired after 2013 described in Regulations section 1.6045-1(n)(3).
See the Instructions for Form 1099-B for more details.
Nonequity option:(p74)
Any listed option that is not an equity option, such as debt options, commodity futures options, currency options, and broad-based stock index options.
Options dealer:(p74)
Any person registered with an appropriate national securities exchange as a market maker or specialist in listed options.
Original issue discount (OID):(p74)
The amount by which the stated redemption price at maturity of a debt instrument is more than its issue price.
Passive activity:(p74)
An activity involving the conduct of a trade or business in which you do not materially participate and any rental activity. However, the rental of real estate is not a passive activity if both of the following are true.
  • More than one-half of the personal services you perform during the year in all trades or businesses are performed in real property trades or businesses in which you materially participate.
  • You perform more than 750 hours of services during the year in real property trades or businesses in which you materially participate.
Portfolio income:(p74)
Gross income from interest, dividends, annuities, or royalties that is not derived in the ordinary course of a trade or business. It includes gains from the sale or trade of property (other than an interest in a passive activity) producing portfolio income or held for investment.
The amount by which your cost or other basis in a bond right after you get it is more than the total of all amounts payable on the bond after you get it (other than payments of qualified stated interest).
Private activity bond:(p74)
A bond that is part of a state or local government bond issue of which:
  1. More than 10% of the proceeds are to be used for a private business use, and
  2. More than 10% of the payment of the principal or interest is:
    1. Secured by an interest in property to be used for a private business use (or payments for the property), or
    2. Derived from payments for property (or borrowed money) used for a private business use.
An option that entitles the purchaser to sell, at any time before a specified future date, property such as a stated number of shares of stock at a specified price.
Real estate mortgage investment conduit (REMIC):(p74)
An entity that is formed for the purpose of holding a fixed pool of mortgages secured by interests in real property, with multiple classes of interests held by investors. These interests may be either regular or residual.
Regulated futures contract:(p74)
A section 1256 contract that:
  • Provides that amounts that must be deposited to, or may be withdrawn from, your margin account depend on daily market conditions (a system of marking to market), and
  • Is traded on, or subject to the rules of, a qualified board of exchange, such as a domestic board of trade designated as a contract market by the Commodity Futures Trading Commission or any board of trade or exchange approved by the Secretary of the Treasury.
Restricted stock:(p74)
Stock you get for services you perform that is nontransferable and is subject to a substantial risk of forfeiture.
Section 1256 contract:(p74)
  • Regulated futures contract,
  • Foreign currency contract as defined in chapter 4 under Foreign currency contract,
  • Nonequity option,
  • Dealer equity option, or
  • Dealer securities futures contract.
For tax years beginning after July 21, 2010, a section 1256 contract does not include certain swaps as listed in Exceptions under Section 1256 Contracts Marked to Market in chapter 4.
Securities futures contract:(p74)
A contract of sale for future delivery of a single security or of a narrow-based security index.
Short sale:(p74)
The sale of property that you generally do not own. You borrow the property to deliver to a buyer and, at a later date, you buy substantially identical property and deliver it to the lender.
Generally, a set of offsetting positions on personal property. A straddle may consist of a purchased option to buy and a purchased option to sell on the same number of shares of the security, with the same exercise price and period.
Stripped preferred stock:(p74)
Stock that meets the following tests.
  1. There has been a separation in ownership between the stock and any dividend on the stock that has not become payable.
  2. The stock:
    1. Is limited and preferred as to dividends,
    2. Does not participate in corporate growth to any significant extent, and
    3. Has a fixed redemption price.
Term loan:(p74)
Any loan that is not a demand loan.
Wash sale:(p74)
A sale of stock or securities at a loss within 30 days before or after you buy or acquire in a fully taxable trade, or acquire a contract or option to buy, substantially identical stock or securities.