SPX Butterfly opened and closed on last trading day of year

[PlotinusRedux]

So on Dec 30, 2022 I opened  and the closed on the same day a put butterfly on SPX--i.e., 2 short puts and offsetting 2 long puts, all also expiring on Dec 30, 2022.  Since the options are on SPX they are treated as Section 1256 contracts.

I made a small gain on the overall trade, with a loss on the long puts offset by a slightly larger gain on the short puts.

For all 4 puts the trade date was Dec 30, 2022 but the settlement date was Jan 3, 2023.

My 1099-B from TDA only lists the long legs on which I had the loss--the 2 short legs are missing completely.  I contacted them and they said broker reporting rules for closing shorts use the settlement date.

Obviously something is wrong here--it has me realizing the losses in 2022 and putting off the gains until 2023.

The best rule I can find it that shorts closed for a gain (as mine where) use the trade date rather than the settlement date, meaning Dec 30 2022, in which case everything would come out correctly--for 2022 I'd realize the slight gain that resulted over all.  Or lacking that, that the short positions would have been marked to market for the tax year 2022 instead of just not existing at all.

I'm not sure how to resolve this if TDA will not change the 1099-B, I assume I have to use lines 8 through 11 under Section 1256 Contracts from the 1099-B.

[RobertB4444 · Accepted solution]

If they won't change the 1099-B then you should really post them in separate years and follow the 1099-Bs that you receive.  I recognize the annoyance of it but making the changes can result in a confused IRS and I advise against confusing the IRS whenever possible.  

@PlotinusRedux 

[PlotinusRedux]

@RobertB4444 Thanks, I guess that's what I'll do even though I know it's not correct--if it was everyone could just use option spreads on the last trading day to realize an arbitrary loss in the current year and a corresponding gain in the next year (hence the rule to realize gains on shorts on the trade date but losses on shorts on the settlement date, etc., to prevent exactly this).

I had enough losses in 2022, though, that it doesn't actually change what I owe in 2022 either way, though I may have to pay a bit extra in 2023 since the gains are now in 2023 without the offsetting loss, though not enough extra to worry about.  I can't see the IRS getting too upset if I both followed my broker's 1099-B *and* doing so did not reduce my taxes.