With tax season coming up, I am curious to see how your short box spreads are being treated on your taxes.
In the case of your 3200⁄3400 box example, my understanding is that these are 1256 contracts which as of Dec 31 resulted in a mark-to-market gain of 200K to your account treated at a 60 long/40 short rate. That’s a whole lot of imputed income for a set of unrealized gains!
My understanding is that each leg of the box spread is marked-to-market, resulting in a small overall capital loss equal to the interest you’re paying to the holder of the long box. For example, the market is up this year, so the bullish legs gained value and the bearish legs lost slightly more value. This is how the Interactive Brokers tax forms work; on the section-1256 section of the 1099 form, the line “Unrealized profit or (loss) on open contracts − 12/31/2020” has a loss of about $2000. If interest rates rise so much during a year that the interest is negative, I would expect there to be a small 60⁄40 capital gain. I could be missing something though.
With tax season coming up, I am curious to see how your short box spreads are being treated on your taxes.
In the case of your 3200⁄3400 box example, my understanding is that these are 1256 contracts which as of Dec 31 resulted in a mark-to-market gain of 200K to your account treated at a 60 long/40 short rate. That’s a whole lot of imputed income for a set of unrealized gains!
My understanding is that each leg of the box spread is marked-to-market, resulting in a small overall capital loss equal to the interest you’re paying to the holder of the long box. For example, the market is up this year, so the bullish legs gained value and the bearish legs lost slightly more value. This is how the Interactive Brokers tax forms work; on the section-1256 section of the 1099 form, the line “Unrealized profit or (loss) on open contracts − 12/31/2020” has a loss of about $2000. If interest rates rise so much during a year that the interest is negative, I would expect there to be a small 60⁄40 capital gain. I could be missing something though.