Does anyone know how to determine which ETF options can be categorized as Sec 1256 contracts for tax purposes? Primarily, I'm trying to determine which ETF options qualify as "non-equity" options under the "broad-based stock index options" part of the definition. Is there a list somewhere?
ETF Options taxed as Sec 1256 Contracts.
- Thread starter DP25
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Off the top of my head, an ETF is a security, so an option as a derivative of such security would not qualify for 1256 treatment.
Green Trader has a page on that https://greentradertax.com/trader-tax-center/tax-treatment/section-1256-contracts/ It looks like according to him the only CBOE options on ETFs that qualify for 1256 are:
- CBOE-listed options on commodity ETF publicly traded partnerships
- CBOE-listed options on precious metals ETF publicly traded trusts
- CBOE-listed options on volatility ETN prepaid forward contracts and ETN debt instrument
It is always best to get such advice from a CPA or Tax Attorney, not forum members. A forum member may have good intentions but that's not the person you want to get advice from. Seek a professionals help in this area. I say this because my CPA just finished my taxes and there is no way would I accept anyone else's input.
You just need to talk to someone like Green Trader who work with traders. Tax advice isn't a "best of 3 quotes" kind of thing, the tax law is the tax law, you just need to find someone who knows it.
It should be already done by your broker and sent to you in 1099-B form. Why not go by what's there.
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One of my sisters is a CPA, and she would not have a clue regarding a definitive answer. This is a lot like law, where there are many specialties requiring a modicum of experience and applied research.
I have had the same question myself. There are traders who wish to know ahead of time whether or not trading a certain option is going to require a higher tax rate and additional paperwork. Some only want to trade options that fit under 1256 so taxes are cheaper and FAR more simple.
What I have heard is that there is controversy regarding whether or not ETFs that exclusively use futures contracts will qualify or not, e.g., BITO the Bitcoin ETF that launched not long ago based on futures. It would be interesting to contact them and see what their reply is to this question!
I have had the same question myself. There are traders who wish to know ahead of time whether or not trading a certain option is going to require a higher tax rate and additional paperwork. Some only want to trade options that fit under 1256 so taxes are cheaper and FAR more simple.
What I have heard is that there is controversy regarding whether or not ETFs that exclusively use futures contracts will qualify or not, e.g., BITO the Bitcoin ETF that launched not long ago based on futures. It would be interesting to contact them and see what their reply is to this question!
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This article from Forbes gives a decent outline, and also points out some of the complexities, such as:
"One might expect that broker-issued 1099-Bs would handle all tax treatment issues, but for some financial products, they do not. Some brokers categorize CBOE-listed options on volatility ETNs, and ETFs structured as publicly traded partnerships as securities, but there is substantial authority to treat these CBOE-listed options as “non-equity options” included in Section 1256. (Options on securities ETFs are taxed as securities.)"
https://www.forbes.com/sites/greats...contracts-has-tax-advantages/?sh=5e63adef1f80
"One might expect that broker-issued 1099-Bs would handle all tax treatment issues, but for some financial products, they do not. Some brokers categorize CBOE-listed options on volatility ETNs, and ETFs structured as publicly traded partnerships as securities, but there is substantial authority to treat these CBOE-listed options as “non-equity options” included in Section 1256. (Options on securities ETFs are taxed as securities.)"
https://www.forbes.com/sites/greats...contracts-has-tax-advantages/?sh=5e63adef1f80