Tax Rules For Crypto Futures And Options Trading

by
Brihasi Dey
Reviewed by
min read
Last updated:

Understanding the tax rules for crypto trading is crucial if you want to avoid any potential penalties from the Internal Revenue Service (IRS). Properly reporting your crypto trades can help you reduce your tax liabilities and avoid any unwanted surprises during tax season.

In this article, we discuss everything you need to know about crypto futures and options trading, how they are taxed in the USA, and answer some of the most frequently asked questions.

What Is Crypto Futures And Options Trading?

Crypto futures trading involves a predetermined contract that allows the trader to buy or sell a crypto asset at a predetermined price, anytime during the lifetime of the contract. 

Crypto options trading is a predetermined trade between a buyer and a seller that obligates a buyer to buy a specific amount of cryptocurrency (and the seller to deliver it) at a predetermined price and future date. The right to buy the asset is called the 'call' option, and the right to sell is called the 'put' option.

Tax Implications Of Crypto Options Trading

In the USA, the tax treatment of crypto options trading is similar to that of stock options trading. You are subject to crypto tax when you:

  • Exercise the options contract to buy or sell crypto
  • Sell the options
  • The options contract expires. 

If you are a buyer, here are a few taxable events to consider:

  • If you hold an options contract and it expires, the cost basis is considered zero, and you can deduct the premium you paid during the purchase of the contract as a capital loss. 
  • If you exercise the options contract, the difference between the strike price (the predetermined price at which you buy or sell) and the fair market value of the cryptocurrency at the time of trade is considered a capital gain or loss.
  • If you sell the options before expiration, the difference between the sale price and the cost basis (i.e., the price at which you bought the options) is considered a capital gain or loss.

If you hold the cryptocurrency for more than one year, any profit from exercising the options or selling the contract is considered long-term capital gains, and the tax rate is 0%, 15%, or 20% depending on your taxable income. 

In case you hold the crypto for less than 12 months, the gains are considered short-term capital gains, and the tax rate is the same as your ordinary income.

Wash Sale Rules

Wash sale rule means that if you realize a loss on some of your assets, you can not implement your “call” option to buy back the same assets (for both the same or different options) within 30 days. 

If you do so, the losses from the sale, along with the call premium will be added to the cost basis of the assets bought. In case you buy the same asset under different options, the loss is added to the premium of the call. 

While this is applicable for other investments like stocks, crypto is currently exempted from this rule. 

Tax Implications Of Crypto Futures Trading

Similar to options trading, any profit or loss made from crypto futures trading are treated as capital gains or losses which are subject to taxes. It is only when you close the contract that you incur a capital gains tax or realize a capital loss.

As per IRS, if the futures contract under Section 1256 produces a capital gain or loss, and the gains or losses open at the end of the year or terminated during the year, it is subject to a 60% long-term and 40% short-term tax rate, regardless of how long the contract was held. No wash-sale rule is applicable in this case. 

This means if you report $10000 capital gains in futures trading with a total taxable income of $3,00,000 — $6000 of your profit will be subject to a 15% long-term capital gains tax rate and $4000 will fall under short-term capital gains tax.

You are allowed to carry back your losses for up to three years, with the losses carried back for the earliest year first and then the remaining carried to the next years. This is applied under the condition that the losses carried back should not exceed the net gains of that specific year.

How Can Kryptoskatt Help With Crypto F&O Trading Taxes?

Whether you are trading in futures or options, Kryptoskatt can help calculate all your tax liabilities in a matter of minutes. You do not have to manually keep track of your trading history or figure out the applicable tax rates. 

Simply import your transactions in the Kryptoskatt app and the platform automatically:

  • Tracks your transactions and the crypto’s fair market value during the time of the transaction in your currency 
  • Figures our taxable transactions and calculates all the applicable crypto taxes
  • Finds out any tax-saving opportunities and apply it automatically 
  • Generate tax reports that comply with IRS laws

Ready to get started? Sign Up Now.

FAQs

What is the tax rate of future trading?

Future trading is subject to a 60% long-term tax and 40% short-term tax on any capital gains made, regardless of how long the contract was held. The long-term capital gains rate is 0%, 15%, or 20% depending on your income bracket and the short-term capital gains rate is the same as your ordinary income tax.

Is trading in futures and options taxable?

Yes, crypto trading in futures and options is subject to tax in the United States. As with other investments, the gains and losses from trading crypto futures and options must be reported on your income tax return.

How do you tax income from futures and options?

The IRS treats cryptocurrencies as property for tax purposes, so the general rules for futures and options taxations apply to crypto as well. Future trading is subject to a 60% long-term tax and 40% short-term tax on any capital gains made, regardless of how long the contract was held. 

For options trading, if you hold the cryptocurrency for more than one year, any profit from exercising the options or selling the contract is considered long-term capital gains. In case you hold the crypto for less than 12 months, the gains are considered short-term capital gains. 

The long-term capital gains rate is 0%, 15%, or 20% depending on your income bracket and the short-term capital gains rate is the same as your ordinary income tax.

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Tax Rules For Crypto Futures And Options Trading

By
Brihasi Dey
On

Understanding the tax rules for crypto trading is crucial if you want to avoid any potential penalties from the Internal Revenue Service (IRS). Properly reporting your crypto trades can help you reduce your tax liabilities and avoid any unwanted surprises during tax season.

In this article, we discuss everything you need to know about crypto futures and options trading, how they are taxed in the USA, and answer some of the most frequently asked questions.

What Is Crypto Futures And Options Trading?

Crypto futures trading involves a predetermined contract that allows the trader to buy or sell a crypto asset at a predetermined price, anytime during the lifetime of the contract. 

Crypto options trading is a predetermined trade between a buyer and a seller that obligates a buyer to buy a specific amount of cryptocurrency (and the seller to deliver it) at a predetermined price and future date. The right to buy the asset is called the 'call' option, and the right to sell is called the 'put' option.

Tax Implications Of Crypto Options Trading

In the USA, the tax treatment of crypto options trading is similar to that of stock options trading. You are subject to crypto tax when you:

  • Exercise the options contract to buy or sell crypto
  • Sell the options
  • The options contract expires. 

If you are a buyer, here are a few taxable events to consider:

  • If you hold an options contract and it expires, the cost basis is considered zero, and you can deduct the premium you paid during the purchase of the contract as a capital loss. 
  • If you exercise the options contract, the difference between the strike price (the predetermined price at which you buy or sell) and the fair market value of the cryptocurrency at the time of trade is considered a capital gain or loss.
  • If you sell the options before expiration, the difference between the sale price and the cost basis (i.e., the price at which you bought the options) is considered a capital gain or loss.

If you hold the cryptocurrency for more than one year, any profit from exercising the options or selling the contract is considered long-term capital gains, and the tax rate is 0%, 15%, or 20% depending on your taxable income. 

In case you hold the crypto for less than 12 months, the gains are considered short-term capital gains, and the tax rate is the same as your ordinary income.

Wash Sale Rules

Wash sale rule means that if you realize a loss on some of your assets, you can not implement your “call” option to buy back the same assets (for both the same or different options) within 30 days. 

If you do so, the losses from the sale, along with the call premium will be added to the cost basis of the assets bought. In case you buy the same asset under different options, the loss is added to the premium of the call. 

While this is applicable for other investments like stocks, crypto is currently exempted from this rule. 

Tax Implications Of Crypto Futures Trading

Similar to options trading, any profit or loss made from crypto futures trading are treated as capital gains or losses which are subject to taxes. It is only when you close the contract that you incur a capital gains tax or realize a capital loss.

As per IRS, if the futures contract under Section 1256 produces a capital gain or loss, and the gains or losses open at the end of the year or terminated during the year, it is subject to a 60% long-term and 40% short-term tax rate, regardless of how long the contract was held. No wash-sale rule is applicable in this case. 

This means if you report $10000 capital gains in futures trading with a total taxable income of $3,00,000 — $6000 of your profit will be subject to a 15% long-term capital gains tax rate and $4000 will fall under short-term capital gains tax.

You are allowed to carry back your losses for up to three years, with the losses carried back for the earliest year first and then the remaining carried to the next years. This is applied under the condition that the losses carried back should not exceed the net gains of that specific year.

How Can Kryptoskatt Help With Crypto F&O Trading Taxes?

Whether you are trading in futures or options, Kryptoskatt can help calculate all your tax liabilities in a matter of minutes. You do not have to manually keep track of your trading history or figure out the applicable tax rates. 

Simply import your transactions in the Kryptoskatt app and the platform automatically:

  • Tracks your transactions and the crypto’s fair market value during the time of the transaction in your currency 
  • Figures our taxable transactions and calculates all the applicable crypto taxes
  • Finds out any tax-saving opportunities and apply it automatically 
  • Generate tax reports that comply with IRS laws

Ready to get started? Sign Up Now.

FAQs

What is the tax rate of future trading?

Future trading is subject to a 60% long-term tax and 40% short-term tax on any capital gains made, regardless of how long the contract was held. The long-term capital gains rate is 0%, 15%, or 20% depending on your income bracket and the short-term capital gains rate is the same as your ordinary income tax.

Is trading in futures and options taxable?

Yes, crypto trading in futures and options is subject to tax in the United States. As with other investments, the gains and losses from trading crypto futures and options must be reported on your income tax return.

How do you tax income from futures and options?

The IRS treats cryptocurrencies as property for tax purposes, so the general rules for futures and options taxations apply to crypto as well. Future trading is subject to a 60% long-term tax and 40% short-term tax on any capital gains made, regardless of how long the contract was held. 

For options trading, if you hold the cryptocurrency for more than one year, any profit from exercising the options or selling the contract is considered long-term capital gains. In case you hold the crypto for less than 12 months, the gains are considered short-term capital gains. 

The long-term capital gains rate is 0%, 15%, or 20% depending on your income bracket and the short-term capital gains rate is the same as your ordinary income tax.

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