Tax treatment of short options that are opened and closed in different calendar years

Forum|Forum|1 year ago
December 24, 2024
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I occasionally sell options for premium (aka short options). As option seller I receive premium or credit at beginning of the trade (sell to open). The question...

If i short sell an option contract in December 2024 for premium but don't close the trade until Jan 2025, will the income be reportable in 2024 tax year or 2025? I'm getting confusing answers elsewhere where some say that receiving premium (opening trade) is a taxable event so it must be reported as income in 2024. While others say it's reportable in 2025 when option contract expires or I close the trade in new year.

Best answer by Mike9241

see this link from Fidelity for covered calls

https://www.fidelity.com/learning-center/investment-products/options/tax-implications-covered-calls

and here is another thread that also overs pure option plays

https://www.investopedia.com/articles/active-trading/053115/tax-treatment-call-put-options.asp#:~:text=Both%20long%20and%20short%20options%20for%20the%20purposes

Mike9241Answer

see this link from Fidelity for covered calls

https://www.fidelity.com/learning-center/investment-products/options/tax-implications-covered-calls

and here is another thread that also overs pure option plays

https://www.investopedia.com/articles/active-trading/053115/tax-treatment-call-put-options.asp#:~:text=Both%20long%20and%20short%20options%20for%20the%20purposes

fanfare

Employee

Use the details shown on your Broker's 1099-B,

You don't have to detail any transactions that are aggregated on Schedule D LIne 1a or Line 8a.

In order to close a short option before assignment you must go to the market and acquire some securities, in this case, some options.

The acquired date is the date you closed the short sale.

If the option expires, the Date Acquired it the date of expiry.

For Stocks, the disposed date is one business days later (settlement).
Stocks, formerly T+3 and T+2, and Options both now settle in one day (T+1).

According to tradelogsofware (tradelog.com) , with a loss incurred, the holding period is one day, but other gurus disagree with that analysis.

One day or zero days, the tax result is the same.

Note to those for whom it is not obvious: Date Acquired and Date Disposed refer to Columns (b) and (c) on Form 8949 that you will report to the IRS.
Your trade date is the date you closed the position and goes in (b). Settlement date must be calculated taking into account weekends and market holidays.

@InvisibleCrow