US tax on box spreads

An estimate of what a US filer would owe on box-spread financing. Two regimes, depending on the underlying.

SPX / XSP — Section 1256

Broad-based cash-settled index options are Section 1256 contracts. Gains and losses are split 60% long-term / 40% short-term, regardless of how long you hold the position. Marked to market at year-end.

SPY, single-stock, narrow ETFs

Not Section 1256. Treated as ordinary capital gains/losses. Because box spreads usually roll inside one year, the loss leg is short-term — taxed at your ordinary income rate.

Underlying

SPX / XSP (Section 1256) SPY / single-stock (ordinary)

Federal ordinary bracket

State effective rate (%)

Pre-tax box rate (%/yr)

Notional borrowed (USD)

Net Investment Income Tax (NIIT) applies — 3.8% on investment income above MAGI $200k single / $250k joint

Estimate

Pre-tax box rate 4.80%

Federal effective (60/40) 18.60%

— long-term cap-gains leg 15.00%

State 0.00%

Total effective tax rate 18.60%

After-tax box rate 3.91%

Annual cost on $100,000 $4,800

After-tax annual cost $3,907

Tax shield (annual) $893

This is an estimate, not tax advice. The calculator assumes you have offsetting capital gains so the box-spread loss is deductible this year. Without them, capital losses offset only $3,000 of ordinary income per year and the rest carries forward. The IRS has flagged some box-spread structures as potentially abusive (Rev. Rul. 2002-69 and follow-up guidance); state treatment varies. Talk to a CPA before relying on this for a real return.