Taxes for QQQ and NQ

K

kleinphi

Guest
Does anyone have experience with taxes for day- or swingtraders who trade QQQ and NQ and do not elect mark-to-market?

My understanding is that in that case you have to report every single transaction in the QQQs an your Schedule D and are subject to the wash sales rule on that, but for all the NQ transactions you only have to fill out your total net gain/loss for the year on IRS form 6781 and there is no such thing as wash sales there.

That means if you daytrade 800 shares of QQQ all year long except in December, and in December you trade only NQ, you don't have any wash sales at all.

Specifically, I would like to know a definite answer to the following questions:

1. Are the NQs Section 1256 contracts?

2. If you sell 800 shares of QQQ for a loss and within +-30 days go long one NQ, is that or is that not a wash sale?

Any help would be appreciated...
 
You should consult your tax adviser for definitive answers, of course, but the information I have is as follows:

1) NQ, being a "regulated futures contract", is a Section 1256 contract.

2) As you probably know, wash sale rules apply to losses (and only losses). Wash sale rules do not apply to sales or trades of futures contracts or foreign currencies. So, you close your 800/sh QQQ position out at a loss and buy an NQ contract within 30 days thereafter (if I have the hypo correct). In that instance, the wash sale rules do not apply BUT the loss deferral rules could come into play if you had both a recognized loss and an unrecognized gain at the end of the year. However, this is a rather unlikely scenario for someone who daytrades. If you close out all of your positions at year end, you should never encounter it.

But the QQQ reporting is perplexing. I'm not sure why you would have to itemize each and every QQQ trade since the net gain (or loss) will be entirely short term. In that situation it would appear that you could simply list the gross proceeds (from your 1099-B) and subtract your total cost basis from the former amount.

For example, you trade the QQQ exclusively during the year. Your first trade is on January 2nd and your last is on December 31st. You do 400 buys, 400 sells, and have no open positions at year end. In that event, why not fill out Schedule D as follows?

Part I Short-Term Capital Gains and Losses
Description: QQQ
Date Acquired: Various
Date Sold: Various
Sales price: Amount from your 1099-B (short sales are "sales")
Cost or other basis: Total cost of all buys
Gain or (loss): subtract cost from sales price

If anyone has information which differs from the above, I'd love to hear it.
 
I believe anytime you buy a stock, QQQ, ect., and sell it for
a loss, the wash rule will apply if you buy it back within 30 days
no matter what month it is.

Correct? Or not?
 
Originally posted by version77
I believe anytime you buy a stock, QQQ, ect., and sell it for
a loss, the wash rule will apply if you buy it back within 30 days
no matter what month it is.

Correct? Or not?
More...

Correct and the any loss would have to be carried forward (and applied to the cost basis) of the stock bought back in the next tax year (e.g. December 22nd loss on 1000 QQQ increases basis on 1000 QQQ purchased on January 10th). The actual month makes no difference.

So you can either disallow the relevant December loss on your Schedule D or simply trade an alternate (not substantially the same) instrument throughout January or until 30 days expires since your last December loss.
 
When completing your tax forms don't forget that QQQ is not a stock; it is a Unit Investment Trust (UIT). Read those brokerage statements closely.
 
But that doesn't have any special tax consequences, AFAIK, except in the unlikely event that the Trust is terminated. Otherwise it's just another Sch D item.
 
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