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Hi,

I just realized that my BCS positions may become a tax problem. They are pairs of purchased and sold CALLs with a small difference ($10 or $20), but each leg represents a lot of shares. The thing is that the purchased CALL shows as Long Term Capital Gain but the sold call shows as Short Term Capital Gain. I understand that LTCG and STCG will be summed separately, So I will end up with a few millions in LTCG and a few millions of STCL. I do not understand how it works, but I think that you can not compensate some gains with some losses, so I may end up paying taxes on my gains without the possibility of deducting the losses.

Cheers,
Juan@Austin
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Capital Gain/Losses are offset in the following order
1.) Long Term Gains against Long Term Losses
Short Term Gains against Short Term Losses
2.) Any remaining Gains can be offset against either type of Capitol Losses
Long Term Gains against Short Term Losses
Short Term Gains against Long Term Losses
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Thanks for your reply VKG,

Then there is no case where you have to pay taxes on an amount of LT or ST capital gains that exceeds your net capital gains.
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Thanks for your reply VKG,
Then there is no case where you have to pay taxes on an amount of LT or ST capital gains that exceeds your net capital gains.

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No, nobody said that. VKG correctly stated that you first net all your short-term transactions against each other, and the same with the short-term transactions.
" Capital Gain/Losses are offset in the following order:
1.) Long Term Gains against Long Term Losses
Short Term Gains against Short Term Losses
2.) Any remaining Gains can be offset against either type of Capital Losses
Long Term Gains against Short Term Losses
Short Term Gains against Long Term Losses
"
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But you have to realize that when all this is done, you're either going to have a net capital gain or a net capital loss.

If it's a net loss, it doesn't matter whether it's long-term or short-term, really. It goes on page 1 of your return as a negative number, and it's limited to -$3,000 either way.

But if it's a gain, it matters a lot. It's included in your gross income either way.
And a net short-term capital gain is like ordinary income.
But a long-term gain is subject to tax at a reduced rate, from zero in the lowest tax brackets to 20% at the highest.

Bill
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jmacosta writes (inpart):

Then there is no case where you have to pay taxes on an amount of LT or ST capital gains that exceeds your net capital gains.

I reply:

That's not correct. If you're subject to wash sale rules, a capital loss may be deferred to a later tax year (by disallowing your loss and adding it to your basis), thereby exposing more of your capital gains to taxation in the current year.

But absent that issue, it's ultimately your net capital gains for the year that will be subject to taxation in that year, offset by any loss carried over from prior years. --Bob
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Thanks Bill,

Your reply was much clearer than mine. Lets see if my old brain finally understood.
If you have LT gains and ST losses or viceversa, you net them first before calculating any tax. I had thought before that the LT and ST rates were applied before calculating net capital gain. So it is clear now, you may only pay taxes on the net.
So... First calculate the net capital gain to establish the bracket and rates.
Then:
If the net is a loss, no worries, use up to 3000 and carryover the rest.
If ST gains > LT losses, then the net is all ST. Add to regular income.
If ST losses < LT gains, then the net is all LT. Use reduced rate.
If both gains, then you pay each portion at different rates. ST is added to regular income and LT is calculated at reduced rate.

Thanks,
Juan@Austin
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