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I only trade options. Nothing exotic but just buying and selling CALLS and PUTS. So for example if I lost 30,000 USD trading options for the 2020 Tax Year. In 2021 I go on to profit 40,000 USD. Does this mean I can offset 30,000 from previous years losses and only owe taxes for 10,000 ?

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2 Answers 2

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For 2020, if you had no gains to offset, you would take $3000 against ordinary income.

Then $27,000 is carried forward and would offset up to $27,000 of gains.

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The annual deduction for losses is $3k so your carryover loss from 2020 would be $27k which would offset $27k of gains in 2021.

However, if you qualify for Trader Tax Status, the $3k annual limit does not apply. Read this if interested in more details.

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  • "Holsinger was in 2008 and the court held that the actual days where trades occurred (i.e. the taxpayer executed 372 trades on 110 days) was a rationale for excluding the taxpayer from trader status as the trading failed the “frequency, continuity and regularity” test." That is quite a high bar. From the nature of the OP's questions, I'm guessing this won't apply. But, good to know, regardless. Commented Jan 16, 2021 at 14:02
  • That is an insanely high bar. When I lived off nothing but trading I would make a few dozen trades a year tops.
    – Fattie
    Commented Jan 16, 2021 at 14:11
  • 372 trade in 110 days fails the frequency and quantity tests. LOL, I've done that in a week (back in 2008). The Poppe vs. Commission case awarded trader tax status (TTS) with 720 trades (60 trades per month). For other limits, see the Green Trader Tax opinion on it. Commented Jan 16, 2021 at 14:21
  • @Fattie must have been nice only working a few minutes per month that year. ;)
    – TTT
    Commented Jan 17, 2021 at 2:35

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