Securities

Securities traders have ordinary tax rates on short-term capital gains, wash sale loss adjustments, capital-loss limitations, and accounting challenges.

Securities traders have ordinary tax rates on short-term capital gains, wash-sale loss adjustments, capital-loss limitations, and accounting challenges.

Securities include:

  • U.S. and international equities (stocks)
  • U.S. and foreign equity (stock) options
  • narrow-based indexes (an index made up of nine or fewer securities)
  • options on narrow-based indexes
  • securities ETFs structured as registered investment companies (RIC)
  • options on securities ETF RICs
  • commodities ETFs structured as publicly traded partnerships (PTP)
  • volatility ETNs structured as debt instruments
  • bonds
  • mutual funds
  • single-stock futures

The IRS taxes securities transactions when a taxpayer closes an open trade — hence the term “realization method.” Taxpayers can defer capital gains by holding open securities positions at year-end. With “tax-loss harvesting,” investors sell to realize losses before year-end 2022. Be careful not to re-enter those positions within 31 days; otherwise, the planned loss might defer to 2023 as a wash-sale loss adjustment. Wash sales during the year can be okay, providing you close them out before year-end.

Short-term capital gains (STCG) use ordinary tax rates, with progressive tax brackets currently up to 37% for 2022 and 2023. Long-term capital gains (LTCG) rates are significantly lower and apply to sales of securities held for 12 months or more. The LTCG rates are 0% for the 10% and 12% ordinary brackets, 15% in the middle brackets, and 20% in the top 37% bracket.

For more information, see Green’sTrader Tax Guide Chapter 3 Tax Treatment of Financial Products.