You buy warrants just like a regular stock. You can also sell them just like a regular stock and take a loss/gain and pay tax on them under the same rules as a regular stock. However with warrants there will come a time, after the merger between DWAC & TMTG, when they will become exercisable meaning for each W you own you will be able to convert it into one common stock for the price of $11.50.
You need to be aware that whatever gain you make upon exercising that W will be taxed as ordinary income no matter how long you held the W and the company can call to force you to exercise the W within 30 days at any time so you will need to make sure funds are on hand to pay the fee and the ordinary income tax at year end. The gain will be considered the price of common stock upon exercising - price you paid for the W - $11.50. Then the new cost basis of your common stock will be the price of the stock upon exercising. So if you bought a W for $10 and exercise when common stock is $100 you will owe ordinary income tax on 100-10-11.5=$78.5 gain. Again this will be the case even if you own the W longer than 1 year.
Most likely they will force exercise of the W's soon after they become exercisable although they can go for up to 5 years without doing that but that's highly unlikely. At that time you can either sell the W as a regular stock or call up your broker and let them know you want to exercise for $11.50 each. After the merger is successfully completed the price of W's should shoot up much higher and be much closer to the price of common stock, minus $11.50, so you will always be able to just sell them like a regular stock if you don't want to go through the exercise process or lack the funds to do so They are more risky right now because you get nothing back if the deal falls through but will be much more profitable than buying common stock now if everything works out as planned.
You are limited to investing only $6000 per year in the IRA though right? Also would you still be able to exercise the warrants to convert to common stock somehow and it's still tax free? I'm not eligible for a Roth IRA but interested in how it would work.
You buy warrants just like a regular stock. You can also sell them just like a regular stock and take a loss/gain and pay tax on them under the same rules as a regular stock. However with warrants there will come a time, after the merger between DWAC & TMTG, when they will become exercisable meaning for each W you own you will be able to convert it into one common stock for the price of $11.50.
You need to be aware that whatever gain you make upon exercising that W will be taxed as ordinary income no matter how long you held the W and the company can call to force you to exercise the W within 30 days at any time so you will need to make sure funds are on hand to pay the fee and the ordinary income tax at year end. The gain will be considered the price of common stock upon exercising - price you paid for the W - $11.50. Then the new cost basis of your common stock will be the price of the stock upon exercising. So if you bought a W for $10 and exercise when common stock is $100 you will owe ordinary income tax on 100-10-11.5=$78.5 gain. Again this will be the case even if you own the W longer than 1 year.
Most likely they will force exercise of the W's soon after they become exercisable although they can go for up to 5 years without doing that but that's highly unlikely. At that time you can either sell the W as a regular stock or call up your broker and let them know you want to exercise for $11.50 each. After the merger is successfully completed the price of W's should shoot up much higher and be much closer to the price of common stock, minus $11.50, so you will always be able to just sell them like a regular stock if you don't want to go through the exercise process or lack the funds to do so They are more risky right now because you get nothing back if the deal falls through but will be much more profitable than buying common stock now if everything works out as planned.
Not taxable if through a Roth IRA.
You are limited to investing only $6000 per year in the IRA though right? Also would you still be able to exercise the warrants to convert to common stock somehow and it's still tax free? I'm not eligible for a Roth IRA but interested in how it would work.