It depends. Under the Section 475 mark-to-market (M2M) election, all open positions are treated as if they were sold at fair market value on the last day of the tax year. However, the treatment of the put premium in your scenario depends on the timing and nature of the transactions.
If you write a put and get assigned, the premium received is typically used to reduce the cost basis of the underlying stock. This adjustment to the cost basis is deferred until the shares are sold. However, under the M2M election, the unrealized gain or loss on the assigned shares is recognized at year-end based on their fair market value as of December 31. The put premium does not directly affect the M2M adjustment because it has already been accounted for when determining the cost basis of the shares.
In summary:
- The put premium reduces the cost basis of the assigned shares.
- The M2M adjustment at year-end is based on the fair market value of the shares as of December 31, without further adjustment for the put premium.
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