I've been trying to find out if this trade would be taxed at long term cap gains if held > 1 year
Example:
Jan 1st 2025, stock XYZ is trading at $100, and I open a June 2026 $120/$140 call debit spread for a net debit of lets say $300.
Now it's sometime between Jan 2026 and June 2026. I see several outcomes.
Close early:
Close sometime between Jan and June 2026 for a net credit of $500, resulting in a profit of $200. That's selling to close the $120 long call and buying to close the $140 short call. How is this taxed?
Exercise:
Let's say XYZ is now trading at $145, putting both legs in the money. Sometime before expiration (but after holding for 1 year), the short $140 is assigned, meaning the $120 long call is exercised to close it. Net profit is $2000 - $300 of initial debit. Is the $1700 taxed at long term cap gains since it was held for over a year?
My intuition would tell me yes, but I'm really not sure as hypothetically, the assignment/exercise would happen at the same exact time, meaning under the hood your broker (on your behalf) would technically buy and sell the shares immediately.. and you'd be considered holding the shares for less than 1 year?
What am I missing?