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BlogPublished June 18, 2026 · 15 min read
Options Selling Taxes (US): Section 1256, Short-Term Gains, and Wash Sales
Options selling taxes for US traders: how short-term gains, Section 1256 60/40 treatment, and wash sales work for premium sellers—plus what to track. Not tax advice.
Taxes quietly decide how much of your option-selling income you actually keep. For US traders, the rules differ sharply between equity options and broad-based index options.
Most equity option premium is taxed as a short-term capital gain. Certain index options fall under Section 1256, which blends long- and short-term rates—and wash-sale rules can defer losses you thought you booked.
This guide explains, at a high level, how option-selling income is generally taxed in the US, the difference between equity and Section 1256 contracts, how wash sales hit active sellers, and what to track. This is education, not tax advice—confirm your situation with a qualified professional.
You will learn the difference between equity and Section 1256 contracts, how the wash-sale rule affects sellers, and what records make tax season painless. Not personal tax advice.
How option-selling income is generally taxed
In the US, premium from most equity options is treated as a capital gain or loss. If you sell a put or call and it expires worthless, the premium is generally a short-term capital gain in the year the position closes—regardless of how long you held it.
Common outcomes for a short option:
- Expires worthless — premium is usually a short-term capital gain
- Bought back to close — gain or loss is the credit minus the debit
- Assigned (put) — premium adjusts your cost basis in the shares
- Assigned (call) — premium adds to your proceeds on the shares sold
The IRS overview of capital gains and losses is Topic No. 409, with detail in Publication 550.
Section 1256: the 60/40 rule for index options
Broad-based index options—such as options on SPX, NDX, and similar—are often Section 1256 contracts. These are marked to market at year end and taxed 60% long-term and 40% short-term, regardless of holding period. For many sellers in higher brackets, that blended rate is favorable.
| Feature | Equity options | Section 1256 (index) |
|---|---|---|
| Examples | Single-stock, most ETF options | SPX, NDX, broad-based index |
| Tax treatment | Usually short-term | 60% long-term / 40% short-term |
| Year-end | Realized on close | Marked to market |
| Wash sales | Apply | Generally do not apply |
This is one reason some premium sellers prefer index products—see SPY vs. SPX vs. single stocks. Product classification can be nuanced; confirm a specific symbol's treatment with a professional.
Wash sales: the active seller's trap
The wash-sale rule can defer a loss if you buy back a substantially identical position within 30 days before or after closing it at a loss. Active sellers who repeatedly sell the same strikes—or roll positions—can trigger wash sales without realizing it, pushing the loss into a later trade's basis.
Where wash sales bite sellers:
- Rolling a losing short option into a new, similar one
- Re-selling the same strike and expiration after a loss
- Holding shares from assignment while trading related options
- Section 1256 index contracts generally avoid wash-sale treatment
Brokers report wash sales on the 1099-B, but their accounting may differ from your own records—reconciling matters. Rolling mechanics are covered in how to roll options.
What to track all year
Records that make tax season simple:
- Open and close dates and prices for every option leg
- Whether each contract is equity or a Section 1256 product
- Assignments and the basis or proceeds adjustment they caused
- Rolls linked to the original position for wash-sale awareness
A consistent journal—reconciled to your broker—turns a year of trades into a clean summary. Importing from your broker keeps it accurate; see IBKR Flex Query for options traders and why keep an options trading journal.
Conclusion: know your product and keep records
Key takeaways:
- Most equity option premium is a short-term capital gain
- Broad-based index options may get Section 1256 60/40 treatment
- Wash sales can defer losses for active sellers and rollers
- Track product type, dates, assignments, and rolls all year
This is general education, not personal tax or financial advice—rules change and depend on your situation. Consult a qualified tax professional. More in the blog.
Frequently asked questions
- How is option-selling income taxed in the US?
Premium from most equity options is taxed as a capital gain or loss, usually short-term, in the year the position closes. Assignment instead adjusts the cost basis or proceeds of the underlying shares. This is general information, not tax advice.
- What is Section 1256 and the 60/40 rule?
Section 1256 contracts—often broad-based index options like SPX—are marked to market at year end and taxed 60% long-term and 40% short-term regardless of holding period. See Section 1256 contracts.
- Do wash-sale rules apply to options?
Yes—buying back a substantially identical position within 30 days of a loss can defer that loss into the new position's basis. Rolling losing options is a common way active sellers trigger it; Section 1256 contracts generally avoid wash sales.
- Are SPX options taxed differently than SPY options?
Often, yes. SPX is a broad-based index option commonly treated under Section 1256, while SPY is an ETF whose options are usually taxed like equity options. Confirm any specific symbol with a professional—see SPY vs. SPX.
- What records should option sellers keep for taxes?
Track open and close dates and prices, whether each contract is equity or Section 1256, any assignments and their basis adjustments, and rolls linked to the original trade. Reconcile your journal to the broker's 1099-B.
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