Wiki Selling TSLA Options - Be the House

[FS_FRA]

USA Tax related question. "consult your tax advisor" I know I know...lol

I'm relatively new to selling puts. I have a 930 that expires this week. I may take the shares but I may roll it out a week and down to 920. I have a faint recollection that closing and selling puts that are in the money have different, potentially negative, tax consequences. Am I dreaming this up and it doesn't make a difference? Just curious as this answer might dictate whether I take the shares or make the roll.

As an aside, I would probably just do it on Friday unless that's generally not the best idea.

Thank you all!

Best,
Gene

There are separate threads for tax questions - better go there, for example:

Tax implications of option selling

Hi fellow Canadians, I have been a TSLA Hodler for 5 years before starting option selling in November and have made some profit from option selling in a taxable corporate account. I would like to invite everyone to share how they optimize their taxation so we all finish the year in a better tax...

teslamotorsclub.com

 

[BornToFly]

USA Tax related question. "consult your tax advisor" I know I know...lol

I'm relatively new to selling puts. I have a 930 that expires this week. I may take the shares but I may roll it out a week and down to 920. I have a faint recollection that closing and selling puts that are in the money have different, potentially negative, tax consequences. Am I dreaming this up and it doesn't make a difference? Just curious as this answer might dictate whether I take the shares or make the roll.

As an aside, I would probably just do it on Friday unless that's generally not the best idea.

Thank you all!

Best,
Gene

Options (that you sell if you're in the US) are just short term capital gains or losses. If you close it at a loss to roll it, and then you let the 920 expire for gain later, they cancel out if they were the same premium.

 

[stealthyc]

Options (that you sell if you're in the US) are just short term capital gains or losses. If you close it at a loss to roll it, and then you let the 920 expire for gain later, they cancel out if they were the same premium.

Note though that the tax counts in the year that the option position is closed. So if you have a big currently losing position that you roll out lets say 2 years for a credit, you will show the big loss in the current year, and then the gain potentially up to 2 years later.

 

[dl003]

SPY 413 & TSLA 880 seem to be our line in the sand today. Fully expect TSLA to test last week low @ 830 as SPY making a new low around 400-405 in the next couple of days. IVs are crushing, uncharacteristic of Mondays, signaling market is not in any risk-on mood.

Soft April China sales & delayed Proxy filing seemed to dampen TSLA's momentum a bit.

I sold 1000C this morning. 780P seems to be a good strike for CCP for when TSLA dips below 840.

 

[Chenkers]

I'm in for 1000 CC's at under and around $3 and 1000/1040 BCS @ $160-1.80 either side of the peak. I have a few ITM BPS that I'm trying to roll 1-2 weeks out at a time. IV certainly crushed, it was up around 93% for this week when I looked earlier and now back to 74%.

 

[BornToFly]

Note though that the tax counts in the year that the option position is closed. So if you have a big currently losing position that you roll out lets say 2 years for a credit, you will show the big loss in the current year, and then the gain potentially up to 2 years later.

Correct, which is why I rolled my badly negative February BPSs to December, hoping they expire worthless and take out the big loss I am otherwise looking at for 2022. If you have a loss over $3000 in a tax year, you can only roll $3000 of loss per year, which is insane. It would take you 333 years to write off a $1M loss you suffered in a bad year (better eat a LOT more broccoli to live that long....).

 

[Yoona]

daytrading 5/6 1000 CC, ok to be assigned

 

[juanmedina]

daytrading 5/6 1000 CC, ok to be assigned

View attachment 799684

I did the same. I am rich lol.

 

[Blue horseshoe]

Correct, which is why I rolled my badly negative February BPSs to December, hoping they expire worthless and take out the big loss I am otherwise looking at for 2022. If you have a loss over $3000 in a tax year, you can only roll $3000 of loss per year, which is insane. It would take you 333 years to write off a $1M loss you suffered in a bad year (better eat a LOT more broccoli to live that long....).

This is debated. You can only offset income by 3000 per year, however reading the irs form it seems to indicate that any additional realized loss can be carried over and offset realized gains in future years. There is no limit explicitly mentioned. I've spoken with CPAs who are on either side of this; some indicate this is incorrect, while others indicate that it is.

 

[BornToFly]

This is debated. You can only offset income by 3000 per year, however reading the irs form it seems to indicate that any additional realized loss can be carried over and offset realized gains in future years. There is no limit explicitly mentioned. I've spoken with CPAs who are on either side of this; some indicate this is incorrect, while others indicate that it is.

I am not going to find out. My plan is to see what my losses are after the BPSs expire or need to be managed December 16th. If I have a large loss, I will sell TSLA shares which have a huge gain, and then buy them back the next week to reset the capital gains timer on those shares. Won't have wash sale to worry about on the shares since they have a gain and not a loss.

 

[dl003]

What I did on Friday was rolling my (multiple) naked calls into (single) covered calls. For example: 4x 1080C into 1x 1000C for $0. Did that because there was a risk of the annual Proxy being filed this morning. In the event of a pump, the single 1000C would go up more slowly than the 4x 1080C, driven by lower delta and IV. I'm going to miss little maneuvers like this if/when the stock splits 20:1.

 

[mongo]

This is debated. You can only offset income by 3000 per year, however reading the irs form it seems to indicate that any additional realized loss can be carried over and offset realized gains in future years. There is no limit explicitly mentioned. I've spoken with CPAs who are on either side of this; some indicate this is incorrect, while others indicate that it is.

Debated, really?

IRS TAX TIP 2003-29 CAPITAL GAINS AND LOSSES Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. The IRS says that when you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.
While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property. A “paper loss” – a drop in an investment’s value below its purchase price – does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it.
If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For more information on the tax rates, refer to IRS Publication 544, “Sales and Other Dispositions of Assets.”
If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
The loss can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up. The “Capital Loss Carryover Worksheet” in the instructions for Schedule D helps figure the amount of loss that can be carried forward to later years.

 

[Blue horseshoe]

Debated, really?

Yes it's debated. I believe it can be carried over and offset realized gains in future years with no cap. I've spoken with cpas who agree. I've also spoken with a cpa/jd who is adamant this isn't the case. People on this forum are also on either side of this.

 

[traxila]

Yes it's debated. I believe it can be carried over and offset realized gains in future years with no cap. I've spoken with cpas who agree. I've also spoken with a cpa/jd who is adamant this isn't the case. People on this forum are also on either side of this.

Never heard of such a thing. Of course you can carry over losses. Any entity can.

You have had a CPA go on record that if you lose a million dollars in one year you get a 3K tax break once and then the other 997K is lost forever for tax purposes? Weird...

"Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted."

"What Is a Tax Loss Carryforward?

A tax loss carryforward (or carryover) is a provision that allows a taxpayer to move a tax loss to future years to offset a profit. The tax loss carryforward can be claimed by an individual or a business to reduce any future tax payments.

Key Takeaways:​

• A tax loss carryforward allows taxpayers to use a taxable loss in the current period and apply it to a future tax period.
• Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any future tax year, indefinitely, until exhausted."

I guess I have to put a disclaimer here to talk to your tax professional....

 

[BornToFly]

Never heard of such a thing. Of course you can carry over losses. Any entity can.

You have had a CPA go on record that if you lose a million dollars in one year you get a 3K tax break once and then the other 997K is lost forever for tax purposes? Weird...

"Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted."

"What Is a Tax Loss Carryforward?

A tax loss carryforward (or carryover) is a provision that allows a taxpayer to move a tax loss to future years to offset a profit. The tax loss carryforward can be claimed by an individual or a business to reduce any future tax payments.

Key Takeaways:​

• A tax loss carryforward allows taxpayers to use a taxable loss in the current period and apply it to a future tax period.
• Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any future tax year, indefinitely, until exhausted."

I guess I have to put a disclaimer here to talk to your tax professional....

I think what Blue Horse is saying is that you can write off more than $3,000 the second year if you have a large gain the second year. That would make logical sense, but the government is not logical....

 

[bkp_duke]

Yes it's debated. I believe it can be carried over and offset realized gains in future years with no cap. I've spoken with cpas who agree. I've also spoken with a cpa/jd who is adamant this isn't the case. People on this forum are also on either side of this.

This is 100% correct. I have used this, per my CPA, to roll losses forward for years, with no limit, to offset future capital gains.

 

[bkp_duke]

I think what Blue Horse is saying is that you can write off more than $3,000 the second year if you have a large gain the second year. That would make logical sense, but the government is not logical....

The $3000 limit is only if you don't have capital gains, you can use $3000 of the loss carried forward to offset INCOME that is not capital gains (i.e. W-2 income). That's $3000 each year until the full loss is accounted for, if you can't use it to offset capital gains.

There is no limit on how much of a prior year's loss you can use on current year's capital gains.

 

[BornToFly]

The $3000 limit is only if you don't have capital gains, you can use $3000 of the loss carried forward to offset INCOME that is not capital gains (i.e. W-2 income).

There is no limit on how much of a prior year's loss you can use on current year's capital gains.

How certain are you of this? Source?

 

[Blue horseshoe]

Never heard of such a thing. Of course you can carry over losses. Any entity can.

You have had a CPA go on record that if you lose a million dollars in one year you get a 3K tax break once and then the other 997K is lost forever for tax purposes? Weird...

"Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any one tax year. Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted."

"What Is a Tax Loss Carryforward?

A tax loss carryforward (or carryover) is a provision that allows a taxpayer to move a tax loss to future years to offset a profit. The tax loss carryforward can be claimed by an individual or a business to reduce any future tax payments.

Key Takeaways:​

• A tax loss carryforward allows taxpayers to use a taxable loss in the current period and apply it to a future tax period.
• Capital losses that exceed capital gains in a year may be used to offset ordinary taxable income up to $3,000 in any future tax year, indefinitely, until exhausted."

I guess I have to put a disclaimer here to talk to your tax professional....

Not my cpa, but a former pwc partner who now does the taxes for a family office running an 8 figure fund. The bolded part is where he believes the carryover allows for ONLY the max $3,000 offset against income. For well over a decade this individual has been whittling down a six figure loss $3,000 a year. To be clear I think thus is absolutely incorrect.

I will add that I did discover my margin interest can also be carried over as I showed a net capital loss last year. That was a nice surprise.

 

[bkp_duke]

How certain are you of this? Source?

My CPA. Used him for 2 decades.

Also see @traxila 's quote above from the IRS tax code.

Some references as well:

Capital Loss Carryover: Definition, Rules, and Example

Capital loss carryover is the capital loss that can be carried forward to future years and used to offset capital gains or as a deduction against ordinary income.

www.investopedia.com

https://www.irs.gov/pub/irs-pdf/p550.pdf (pages 56 and 66)

Topic no. 409, Capital gains and losses | Internal Revenue Service

IRS Tax Topic on capital gains tax rates, and additional information on capital gains and losses.

www.irs.gov