Cost basis is $0 for selling covered call and buying to close?

[TsenYeong]

My brokerage is reporting my cost basis is $0 for covered call options I sold and then soon afterward bought to close.  Is my cost basis $0.00 as the brokerage reported?  Or do I need to correct that amount to account for the cost of buying to close the option?

[JohnB5677]

Dealing with covered calls can be a challenge, but we'll help you get through it.

The first issue is that we don't allow a purchase date after the sale date.

I suggest you click the target button for Something other than a date

The drop-down box will say "Blank".

Click the down arrow and select "Various"

Enter your information down to Box 1e - Cost or other basis  = Leave blank

Check the box below The cost basis is incorrect or missing on my 1099‑B = Continue

Let us know if any of these situations apply to this sale = None of these apply

We noticed there's an issue with your cost basis...Let us know if you'd like to make any changes

Check I know my cost basis and need to make an adjustment = Enter the new cost basis

[TsenYeong]

Thanks for the reply, John.  So you're saying that it shouldn't just be $0.00?

Your steps below look fine.

I'm wondering now what my cost basis should be.

Should it be the amount that I bought back the contract for?  Or should it be the amount I bought the contract for minus the gains/losses that I inccurred?  Should I factor in/add the cost (cost basis) of the underlying/covered shares?

EDIT:  I figured out that if I changed the cost basis then I would end up underpaying for my taxes.  I think my brokerage is reporting this correctly since they are reporting "Proceeds" from the result of the contract selling and contract buying to close.

[AmyC]

Yes, a basis of zero if they have already subtracted the basis to give you the net proceeds makes sense.

[Fseminario1]

Thanks for asking. I ran into the same issue with my tax reporting for TD ameritrade. Just want to confirm that you didn’t actually change the cost basis but just left the report as is? Yoy didn’t update the entries based on the suggestion from the earlier poster correct?

[KristinaK]

When reporting covered calls, the cost basis is usually zero. You will need to make sure that each of your transaction shows the correct basis on your return. You do that by going into that area of the tax return and making manual adjustments when needed.