I buy a LEAPS call or put and sell it a year later. i get a long-term gain or loss right? But what if I occasionally hedge it with short short-term calls or puts? Does my long LEAPS contract lose its long-term gain/loss status?
Technically, I think you are supposed to take into consideration all the derivatives on an underlying when doing taxes, but not sure how you'd even do it here and no way the IRS will sit there and say, hey, he has qqq with 2 year maturity and he's hedging with short term qqq options, that leap should be short term when he sold it. I just don't see that happening. Tax stuff can get real complicated with derivatives so I just do the best I can. I think holding qqq and buying puts people would be in a similar situation. Id count it as a long term myself, but not sure how much money you have in it. If it's very significant I'd get a tax advisers opinion.
"According to the tax code, short- and long-term losses must be used first to offset gains of the same type. But if your losses of one type exceed your gains of the same type, then you can apply the excess to the other type." - fidelity your leaps will be LTCG, your hedges will be short term capital gains OR losses and will offset each other with any remaining losses being applied to the gains on your LEAPs. pretty nice system really.
I’m just looking at tax tables and my longterm rate is zero as long as my income stays under 96000 or 15 percent if under 400000. Nice side benefit of holding a LEAPS option.
Not a buyer of options here... but I think all options are short term holds, for tax purposes. Makes sense too. The long term holding tax advantage (in rates) is to encourage less trading. CFOs of listed companies prefer that. Makes their jobs easier to plan, and better, higher returns returns more doable.
I recently started writing covered leaps in 2024. I generally understand that since the term of the contract is over 365 days, the gain / loss would typically be treated as a long term gain/loss in 2025 (assuming I hold it for at least 365 days). However, my brokerage firm (Fidelity) sent me a 1099 B in 2024 (even though I have not closed out the contract) showing a short term gain of the full amount of the option premium with the acquired and sale date = to the date I wrote the call. With that said, should I: a) report this 1099 b on my 2024 taxes? or b) should I ignore the 1099B and report in on 2025 tax return when I receive the 2025 1099B with the closing transaction? However, if I do this, will this trigger an inquiry/audit from the IRS for not reporting this transaction on the 2024 1099B? Thanks in advance for any guidance on this LEAPS taxation question!!