Sec. 1256 and ETF non-equity options
- Thread starter UVXY20
- Start date
While not an equity, but also not an ETF or ETN .... VIX options seem to be a great alternative to things like UVXY, UVIX, SVIX, etc. Not only clearly Section 1256, but European style, so no annoying early assignments, as well as much improved liquidity. -- Not really an answer to your question...
GLD is? I didn't know that. I wonder if SLV is too.
GLD is a grantor trust, they’re not an equity -
https://www.spdrgoldshares.com/media/GLD/file/SPDR-Gold-Trust-Tax-Information-2022.pdf
different for taxes on options, no wash sales, etc. you’re treated as holding the underlying asset (gold or gold futures), and those aren’t equities in this case. More here
https://www.investmentnews.com/the-complexity-of-etf-options-37023
Very good article from a dead site
https://web.archive.org/web/2017042...m/articles/how_are_your_etf_options_taxed.htm
If the ETF is not set up as a RIC, but as a trust (like GLD) or a limited partnership (like USO), then listed options on the ETF would be treated as a non-equity option under Section 1256.
Investors can maximize their after-tax returns from the use of options on ETFs by using Section 1256 options if they plan on holding the option for less than one year or if they are writing the options. If the investor plans on holding the option for over one year, then options on a corporate ETF or an OTC option would be preferable.
If you care about an etf in particular, check its prospectus for the structure.
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I don't think anybody knows for sure how etf's are taxed Not even the brokers agree on which one is a section 1256 and which one is not
Last year I traded USO at one brokerage and was treated as section 1256 and this year I traded USO again and it was treated as regular ETF so not section 1256
This year I traded IWM at Etrade and was treated like regular stock but after it completed the merger with MS and traded IWM in the same account the rest of the year they treated it as section 1256 So I have a 1099 from each brokerage for last year one says it's a1256 and the other is not So who is right ? Just today I got a correction from another brokerage changing the status of GLD on last years 1099 from regular etf to 1256
It's like the wild west Just make it up as you feel like it Who cares about any regulations
When I tried to argue with MS about IWM this is what they told me "Morgan Stanley uses a different tax reporting interpretation for Section 1256 "
So it's subject to interpretation
Last year I traded USO at one brokerage and was treated as section 1256 and this year I traded USO again and it was treated as regular ETF so not section 1256
This year I traded IWM at Etrade and was treated like regular stock but after it completed the merger with MS and traded IWM in the same account the rest of the year they treated it as section 1256 So I have a 1099 from each brokerage for last year one says it's a1256 and the other is not So who is right ? Just today I got a correction from another brokerage changing the status of GLD on last years 1099 from regular etf to 1256
It's like the wild west Just make it up as you feel like it Who cares about any regulations
When I tried to argue with MS about IWM this is what they told me "Morgan Stanley uses a different tax reporting interpretation for Section 1256 "
So it's subject to interpretation
No, some brokers are just wrong. Schwab I’ve heard is poor on this front. Haven’t looked at my Etrade/MS ones yet this year.
I guess I wouldn’t complain if they wanted to mark my short term profits on AAPL or TSLA options as 1256 and give me 60/40 treatment, but somehow they only make the mistakes in the IRS’s favor.
Even if your broker treated your AAPL or TSLA option as 1256 by mistake, it is up to you to report them properly as short-term capital gains stat. As it is for CPA accounting, the final responsibility of proper tax reporting falls on the taxpayer.
Just like having a paid tax preparer does not absolve you of their mistakes.
And neither does a mistake by a broker absolve you of their folly.
Rule of thumb is any option that is cash settled. Plus the whole universe of futures + options on futures of course