As mentioned in the title, I traded either call credit spreads and put credit spreads to earn premiums on Robinhood. Now, every credit spread includes option buy and option sell part, on the same expiration date, but different strike prices.
Upon 1099 import, all the option buy and sell parts of the credit spreads are recorded separately, and all option sell parts triggered "Needs Review" and repeatedly ask whether cost basis of 0 needs to be adjusted.
Should I select "I know my cost basis and need to make an adjustment", and still put 0 for "Actual cost basis"?
My worry is that I am unsure exactly what it means when option buy and sell part out of single credit spread trade is recorded separately. If I am correct, most taxpayers can claim up to $3000 loss on stock/investment trading which I have always assumed comes from the end of year net gain/ loss. But such loss cannot be counted if it is considered wash sales (same stock buy and sell within 30 days)
Hypothetical Example:
Sell put option and receive credit of $10,000.
Simultaneously buy put option for $9,500 to create a max loss on the trade.
If the option expires OTM, then I receive a net credit and thus profit on the trade of $500.
My concern is now for this example, what exactly am I taxed on?
Is it, A. I get taxed on the $10,000, but then am able to claim up to $3,000 loss(Out of $9500 loss) so ultimately I am taxed on $7,000. (This is part I am worried the most since it will incorrectly incur huge tax burdens on me, even though I only earned $500, not $7,000 nor $10,000)
Or is it B. I get taxed on the net credit/profit of $500 regardless of the equity used for each leg of the options spread?
In addition, for example if I made a loss on this trade of $1,000( random number), would that loss count against the $3,000 we can claim for losses?
Thanks if you are reading this, I appreciate you taking your time to look through it and hopefully respond!
