I bought 3 LEAPs on XYZ at various times in 2019 which all expired in 14-17 months. I intend to sell or donate them once they reach long term status. However, I also wrote 3 CALL options on XYZ that were out-of-money when written. Am I correct in assuming that writing these CALLs doesn't affect the LEAP holding period? Is it necessary for me to close the short positions before end of year to avoid having to report the call spread as an open hedging transaction?
A security is the specific option contract - i.e. the same call or put, underlying, strike price, and expiration date. So a purchase and sale in one security should not effect another. i.e. assuming the Calls are different securities from the LEAPS one should not affect the other.
However the IRS does care about use of 'related' securities if you are using them avoid paying taxes to circumvent the holding periods. e.g. you bought a LEAP and then instead of selling the LEAP at the market short term, bought a call in a nearby strike or nearby expiration to "cancel-out" the remainder of the LEAP.
For a short sold LEAPS that is an option on an individual stock, the trade is not reportable for tax purposes until the position is terminated from your account. ... the result will be a short-term gain or loss for tax purposes. This may seem unfair since you could have a LEAPS short in your account for longer than the year it takes to turn most losses or profits into long-term results. But the rules are the rules ...
LEAPS contracts valued on stock indexes are treated differently for tax purposes than the long-term options on individual stocks. ... the gain or loss on your short position must be calculated at the end of the year and a gain or loss reported based on the value at that time.