Author Topic: How are profits from short Put positions taxed?  (Read 762 times)

Mephistopheles

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How are profits from short Put positions taxed?
« on: October 24, 2019, 01:45:14 PM »
I wrote a long term put and repurchased it out 1.5 years later. To my surprise on my realized gain&loss it shows as a short term gain, NOT a long term gain. I spoke to my broker (Merrill Edge) who reported the inquiry to the internal tax reporting department. 1 week later Merrill got back to me and said that when shorting options, regardless of when the position is closed or when it expires, it will always be taxed as a short term gain???

This is so confusing to me. I tried looking it up on the IRS website but can't find any resources confirming this. Did Merrill fuck up or am I in the wrong? I'm pissed because they will report this as a short term gain to the IRS, and if I manually change it on my tax return I'm afraid of an audit. Can anyone confirm for or against what Merrill is telling me?


wabuffo

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Re: How are profits from short Put positions taxed?
« Reply #1 on: October 24, 2019, 02:06:24 PM »
The gains on short puts (even from short LEAP puts) are always taxed at short-term rates in the US.

These are evil trades from the devils den of speculating rather than investing and the sinner must be taxed at ordinary income rates. 8)

wabuffo
« Last Edit: October 24, 2019, 02:09:24 PM by wabuffo »

Mephistopheles

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Re: How are profits from short Put positions taxed?
« Reply #2 on: October 24, 2019, 06:05:05 PM »
The gains on short puts (even from short LEAP puts) are always taxed at short-term rates in the US.

These are evil trades from the devils den of speculating rather than investing and the sinner must be taxed at ordinary income rates. 8)

wabuffo

Thank you, wabuffo. saved me the agony of finding it on the IRS website. Is this applicable to gain on shorting calls as well?

What a stupid peculiar rule

Can you point to the IRS page that describes this?

Cigarbutt

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Re: How are profits from short Put positions taxed?
« Reply #3 on: October 24, 2019, 06:24:26 PM »
^Since you're looking for boring prose, publication 550 is hard to beat:
Table 4-3, page 58
https://www.irs.gov/pub/irs-pdf/p550.pdf

"What a stupid peculiar rule"
I thought the stupidity was when Faust gave up eternal happiness for a few years of earthly delights.


boilermaker75

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Re: How are profits from short Put positions taxed?
« Reply #4 on: October 25, 2019, 05:25:40 AM »
The gains on short puts (even from short LEAP puts) are always taxed at short-term rates in the US.

These are evil trades from the devils den of speculating rather than investing and the sinner must be taxed at ordinary income rates. 8)

wabuffo

Trading futures are only 40% evil, even if held short-term, as you are taxed long term rates on 60% of your gain and short term rates on the other 40% of your gain!

mjs111

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Re: How are profits from short Put positions taxed?
« Reply #5 on: December 02, 2019, 06:48:04 PM »
As I recall, the logic of taxing all short positions (stocks as well as stock options) as short term capital gains is that the asset in question is only held for a small fraction of a second.  When you establish the short position you never actually own the asset: you've sold an asset or borrowed and then sold the asset. When you buy it back you only own it for a fraction of a second before the position is closed out. So while the position may have been open for over a year, ownership of the asset was definitely not.


Mike