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.

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.

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.

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.

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.

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.

Any transaction that you entered into after April 30, 1993, that meets both of these tests.

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.

Any option:

The price at which property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.

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.

A contract to deliver a substantially fixed amount of property (including cash) for a substantially fixed price.

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.

Any below-market loan where the forgone interest is in the nature of a gift.

Compensation for the use or forbearance of money.

The interest you paid or accrued on money you borrowed that is allocable to property held for investment.

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.

Any option that is traded on, or subject to the rules of, a qualified board or exchange.

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.

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.

Any bond having market discount except:

A person who receives, in his or her name, income that actually belongs to someone else.

Any listed option that is not an equity option, such as debt options, commodity futures options, currency options, and broad-based stock index options.

Any person registered with an appropriate national securities exchange as a market maker or specialist in listed options.

The amount by which the stated redemption price at maturity of a debt instrument is more than its issue price.

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.

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).

A bond that is part of a state or local government bond issue of which:

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.

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.

A section 1256 contract that:

Stock you get for services you perform that is nontransferable and is subject to a substantial risk of forfeiture.

Any:

A contract of sale for future delivery of a single security or of a narrow-based security index.

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.

Stock that meets the following tests.

Any loan that is not a demand loan.

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.