Taxation on Options Spreads via /r/wallstreetbets #stocks #wallstreetbets #investing

Taxation on Options Spreads

I know this subreddit really is more for shitposts and memes, but if anyone could help me understand the tax implications of options spreads I would appreciate it!

I started trading last year and mainly invested in stocks. However, this year I started trying options namely option spreads and am slightly confused on exactly what I will be taxed on. It is my understanding that when trading a vertical option spread, each leg of the trade is taxed separately with one always having a gain, and one having a loss, with the net difference between the two making up your ultimate profit/loss on the spread.

However, I am worried and starting to panic as I am unsure exactly what it means when it is taxed separately. If I am correct, most taxpayers can claim up to $3000 loss on stock/investment trading which I have always assumed comes from the end of year net gain/ loss.

Hypothetical Example:

Sell put option and receive credit of $10,000.

Simultaneously buy put option for $8,000 to create a max loss on the trade.

If the option expires OTM, then I receive a net credit and thus profit on the trade of $2,000.

My concern is now for this example, what exactly am I taxed on?

Is it, A. I get taxed on the $10,000, but then am able to claim up to $3,000 loss so ultimately I am taxed on $7,000.

Or is it B. I get taxed on the net credit/profit of $2,000 regardless of the equity used for each leg of the options spread?

In addition, for example if I made a loss on this trade of $1,000( random number), would that loss count against the $3,000 we can claim for losses?

Thanks if you are reading this, I appreciate you taking your time to look through it and hopefully respond!

Submitted November 09, 2020 at 11:06PM by Burner235834
via reddit