Taxes on ETF's options

Discussion in 'ETFs' started by bwilliams5534, Mar 16, 2009.

  1. Hi guys I posted this in the options forum as well but figured it should probably be posted here too. Sorry if this is considered a no-no... if it is please just delete this post and don't ban me or anything:)

    I have a quick question that I was hoping someone on here could finally answer. I have asked my accountant, proshares, and few people proshares referred me to and no one could answer this question...

    How are options on ETFs like the DIA and SPY taxed? Are they taxed at the 60/40 rate or normal short term capital gains rate? Are ultra and 3x ETFs then taxed at this same rate?

    I saw on an accounting website under their FAQ this below answer on the subject. When I then asked them if the same applied to ultra and 3x ETFs they never responded and took the question and answer down from their FAQ.

    I did copy and past the text in my e-mail so here is what the question and answer was..

    "How do the QQQ, DIA or SPY Trading Options get Treated under the Section 1256 Broad Based Index?
    The QQQ day trading, SPX, XOI, etc - are types of nonequity options. Nonequity options are options that are not directly or indirectly related to a specific equity (stock). Most, if not all, publicly traded index options are nonequity options and get the Section 1256 broad based index tax treatment.
    For those of you wondering, the Section 1256 broad based index says that any gains or losses from the sale of these securities are subject to the 60/40 rule. 60% of gains and losses are long-term and 40% are short-term, regardless of how long the securities are held.
    So, even if you only hold the option for a day, 60% of your gain will be considered long-term and taxed according to the Section 1256 broad based index at the preferential long-term capital gains rate"

    So, I am just wondering if someone can clarify whether or not its true that options on index's like the SPY and DIA get taxed at 60/40? If so would ultra and 3x ETFs get taxed at this rate as well, or would only the ultra ETFs like the DXD and SSO get taxed at this rate that are based off indexs but not the SRS which is based on the IYR, which is not an actual index that has futures? Thanks for any help you can provide.
  2. gkishot


  3. charts


    DIA, SPY, QQQQ are taxed as securities. Their options seem to be taxed as Section 1256 contracts (60/40). Options on ETFs and indexes that aren't broad-based are not Section 1256 contracts.