US tax on box spreads
An estimate of what a US filer would owe on box-spread financing. Two regimes, depending on the underlying.
SPX / XSP — Section 1256
Broad-based cash-settled index options are Section 1256 contracts. Gains and losses are split 60% long-term / 40% short-term, regardless of how long you hold the position. Marked to market at year-end.
SPY, single-stock, narrow ETFs
Not Section 1256. The loss is a regular capital loss. Held under a year it is short-term, so it offsets gains taxed at your ordinary income rate. These boxes can also be caught by the straddle rules, and American-style options can be exercised early.
Estimate
Pre-tax box rate
4.80%
Federal effective (60/40)
18.60%
— long-term cap-gains leg
15.00%
State
0.00%
Total effective tax rate
18.60%
After-tax box rate
3.91%
Annual cost on $100,000
$4,800
After-tax annual cost
$3,907
Tax shield (annual)
$893
This is an estimate, not tax advice.
The calculator assumes you have offsetting capital gains so the box-spread loss is deductible this year. The 60/40 blend only holds if the gains you offset are in that mix; against long-term gains alone the loss is worth your long-term rate. Without offsetting gains, capital losses offset only $3,000 of ordinary income per year and the rest carries forward; a net Section 1256 loss can also be carried back 3 years against Section 1256 gains. There is no IRS guidance specific to box spreads, and state treatment varies. Talk to a CPA before relying on this for a real return.