Tax-Straddle Rule Law and Legal Definition

Tax straddle rule is a rule preventing undue deferral of tax on income or conversion of ordinary income or short-term capital gain into long-term capital gain by disallowing the premature deduction of a loss on sale or disposition of one leg of a straddle position while retaining the other, offsetting leg or position. For example, in a straddle position a promise to sell may be offset by a promise to buy. However, this practice is to a great extent restricted by the requirement that gains and losses on commodities transactions must be reported based on their value at year end.