Wash Sale Rule Specifically with Options Trades

Forum|Forum|3 years ago
December 23, 2022
2 replies
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I have had losses using call options and currently in a trade - covered call strategy with the same stock. If I do not exit this trade by December 31, will my wash sale losses be deferred to next tax year? Meaning I cannot deduct losses for 2022 but CAN for tax year 2023?

Anonymous_

Employee

@Mike9241

techie353Author

Thumbs up? Meaning yes I am correct? Just confirming...

Mike9241

see this link which describes various scenarios that create a wash sale. to get the wash sale loss you have to close the position before 1/1/2023 and not establish a position that would cause another wash sale for the first 30 days of 2023

https://tradelog.com/education/wash-sales-for-traders/#options

however, they have a caveat

There is no clarification in the tax law as to how far “in or out of the money” the option is, or what month and year the option expires. So TradeLog simply applies this rule as follows: If the underlying stock is the same, then the option is “substantially” the same. For details see our Chart of Wash Sale Triggers section below.

others would disagree and take the position that options with different strike prices and or expiration dates are not substantially the same and therefore do not create a wash sale. don't know what your broker does.

techie353Author

@Mike9241

Also, if I am anticipating higher ordinary income next year ... then should I let my wash sales close in 2023 so my losses can be used to offset my higher income? I think this answer is no. Capital gains cannot offset ordinary income. Only $3,000 is limit.

Separate question, if I continue to trade covered call options and do not wait out the 31 days for all year of 2023 will the wash sales loss be deferred still to year 2024?

Your feedback much appreciated!