Treasury Secured Puts (TSPs)

[Your_Full_Name]

@monkk

As a rule, any income derived from a debt instrument (loan, bank account, bonds, etc.) is subject to income tax. From a tax point of view, interest is taxable provided that a payment (1) arises
from the debtor in favor of the private investor (creditor) and (2) does not represent a reimbursement of the principal amount (i.e. exceeds the nominal value). Hence, where a private investor sells a bond, the part of the selling price that includes accrued interest is not considered as taxable income but as an exempt capital gain. This particular tax treatment can be explained by the fact that the payment is not made by the debtor but by the new creditor. In other words, capital gains realised upon disposal of a bond prior to maturity are tax exempt.
However, the reimbursement received at maturity of the ordinary bond is qualified as taxable interest: in such a case, the payment is made by the debtor to the private investor and exceeds the value of the principal.

Or do they mean “last payment accrued interest” part is taxable, while “last payment capital gain” part is not, same as “accrued interest upon sale”?

Frankly, I think this is confusingly formuated by Thierry De Mitri … maybe on purpose as their business is tax advising? Honi soit qui mal y pense …

These are the relevant passages from your quote above:

As a rule, any income derived from a debt instrument (loan, bank account, bonds, etc.) is subject to income tax.

From a tax point of view, interest is taxable provided that a payment … does not represent a reimbursement of the principal amount (i.e. exceeds the nominal value).
…
However, the reimbursement received at maturity of the ordinary bond is qualified as taxable interest: in such a case, the payment is made by the debtor to the private investor and exceeds the value of the principal.

What Uncle Sam will pay me at the May 31 2025 maturity of my treasury note is the principal aka nominal aka par value of the bond plus the final interest due on May 31 2025.
I’ll pay income tax on that final interest payout of 0.25% but certainly not on the nominal.

That third quoted sentence above is particularly confusing, as it kind of implies that “the reimbursement” is the debtor paying back the principal at maturity and that this is taxable, while in fact it’s only any reimbursement above the principal that would be taxable, i.e. the final interest payment.

Anything else wouldn’t really make any sense, would it? Think about it: you lend someone money (let’s say no interest, it’s your friend). They pay back that money to you. That’s not income, is it?

@monkk

Finally, I assume you don’t fret about professional trader status and did sell puts since 2020. Do you put all transactions to tax declaration? Somebody on forum stated they you don’t unless they carry over in next year and should be declared as overall wealth.

No, doesn’t worry me. I carry only few Put positions over the year end to avoid suspicion and it works out fine. See this post for a more detailed discussion.