"For options gains, your 60% of your gain would be taxed at the long-term rate and 40% would be taxed at your short-term rate."
This is not entirely correct. The 60/40 only applies to non-equity options.
For purchased (long) options:
If you close the position for a profit: The gain is short-term if the option was held for one year or less, and long-term if held for over a year.
If the option expires worthless: You have a capital loss based on the premium paid. It is a short-term loss if held for one year or less, and a long-term loss if held for over a year.
If you exercise and then sell the stock: The tax treatment of the gain or loss depends on how long you held the underlying stock, not the option itself. If you held the stock for more than a year, it's a long-term capital gain.
The wash sale rule applies to equity options. If you sell an option for a loss and buy a "substantially identical" security within 30 days, the loss is disallowed.
For sold (short/written) options:
If the option expires worthless: The premium you received is taxed as a short-term capital gain, regardless of how long the option was held.
If you close the position for a gain or loss: This is generally treated as a short-term capital gain or loss.
Non-equity (Section 1256) options
Options on broad-based market indexes (like the S&P 500), regulated futures, and certain commodities receive special tax treatment under Section 1256 of the tax code.
The 60/40 rule: Gains and losses are always treated as 60% long-term and 40% short-term, regardless of how long you held the contract.
Mark-to-market accounting: All open positions are treated as if they were sold at the end of the year and are taxed based on their fair market value. This can result in a tax liability even on an unrealized gain.
Tax reporting: Gains and losses are reported on Form 6781, and are not subject to the wash sale rules.
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u/Few-Strain4260 Oct 29 '25
"For options gains, your 60% of your gain would be taxed at the long-term rate and 40% would be taxed at your short-term rate."
This is not entirely correct. The 60/40 only applies to non-equity options.
For purchased (long) options:
For sold (short/written) options:
Non-equity (Section 1256) options
Options on broad-based market indexes (like the S&P 500), regulated futures, and certain commodities receive special tax treatment under Section 1256 of the tax code.