Question on reporting selling put and call options

[tmmn939]

In 2020, I made the following four option transactions:

In June, I sold a covered put option that expired after 30 days I received a premium of $24.00.

In July, I sold a covered put option on the same stock that was exercised which resulted in me buying 100 shares for $4,300.00. I also received a premium of $25.50.

In August, I sold a call option on the same stock I purchased that expire after 30 days.  I received a premium of $32.00.

In September, I sold a call option on this same stock which exercised resulting in me selling my 100 shares for $4,700.00.  I also receives a premium of $31.50.

I know these are all treated as capital gains but I am not sure how they would be recorded on form 8949.

Are the two premiums on the expiring contracts treated as separate transactions with a zero cost basis?

Do I report the premiums from the exercised transactions the same way as above or do I ONLY use these two premium to adjust my cost basis on my stock sale and purchase.

[DavidD66 · Accepted solution]

The options that expired, are reported as independent transactions.  For the put you sold that expired, report it with proceeds of $24 and a cost basis of 0.  Same for the expired Call, it will have proceeds of $32, and a cost basis of $0.

The options that were exercised are not reported, and adjust the basis of the underlying stock that was purchased or sold.

[fanfare]

refer to IRS Pub 550 for the treatment of all scenarios you can imagine.

[Mike9241]

when you get your 1099-B, that would have all the info you need. if your broker partners with Turbotax you should be able to import the transactions that need to be reported. 

[tmmn939]

Thanks David.  Very helpful.

[earnandenjoy]

Hi David, 

I have a slightly different issue on Turbo Tax. The 1099-B on short term capital gains for selling PUT options needed to be reviewed because of he cost basis being zero. So, while reviewing these transactions, I changed the answer for the "What type of investment did you sell" from "Stock (non-employee)" to "Options".

The moment "Options" is selected, further down there were 2 radio buttons - Sold or expired.

For the PUT Options that I sold and that had expired, I decided to choose "Expired". When I do that the "Proceeds" field disappears, and when I go to the end of the review, the Tax I owe started getting reduced.

I'm worried that Turbo Tax has taken the answers incorrectly. Any advice?

[dumrinda]

@earnandenjoy @I'm also in the same category and facing the same issue for the expired CALL/PUT options. 

1. What type of investment did you sell?
   • I answered "Option"
2. How did you receive this investment?
   • I answered "I purchased it"
3. Sold or expired?
   • I answered "Expired"

When I answer 3) question as Expired, TurboTax hides the proceeds. This is incorrect and reduces my tax liability. 

My alternative solution is

• Append (Option expired) to default description
• Answer 3) question as "Sold"

I know the above is not the correct situation. However, at least I'm reporting the amount correctly. does anyone has seen the issue and is this alternative valid?

[patterjp]

What should I select in turbotax for covered puts?

[patterjp]

Please help with Turbotax - should I select "Stocks" or "Options" in Turbotax? If I select "Options", the premium is automatically set to 0. 

[fanfare]

Last I tried it, TurboTax doesn't handle that "Expired" pathway very well.

Treat it as a stock with a zero cost basis.

Better yet, since options are covered transactions,

 be aware that your category Box A or Box D sales without adjustments do not require Form 8949, so there is no reason to import or key in those transactions.
Instead use the "enter a summary" option to put your numbers on Schedule D Line 1a or Line 8a.

Category A and D are the covered transactions.

[dumrinda]

@fanfare Form 8949 and Schedule D are generated by the Turbotax. How do we control it does not add entries for Options on Form 8949 but adds the amount from Option sale on Schedule D? Is there a way to manually enter the amount?

I manually edited the description for the Options imported from the 1099-B form?

CALL ({code}) {company name} COM JUL 1 (Option expired)

I chose the "SOLD" checkbox for option (instead of EXPIRED) so that TurboTax does not ignore the gains from Option

I believe Turbotax would add this amount on Schedule D too under short-term gain. 

[fanfare]

TurboTax recently changed its rules for Form 8949.

Even if you enter a detail for a covered transaction, TurboTax may suppress it.

It should not, but it's not clear you can do anything about that.

As long as your Schedule D totals agree with your consolidated 1099-B totals,

that's all that is required.

---

IRS requires details of all sell transactions, EXCEPT  for Category A or D without adjustments.

If you did not get a 1099-B your category is C or F

There is no exception for these categories.

If you summarized a broker 1099-B that is entirely Box A or D without adjustments, you don't mail that statement in to the IRS.

For anything else you summarized, you mail the details.

[dumrinda]

Thank you @fanfare for the details.

Correct me if I understand correctly from your previous response

1. Summarize view is Form 8949 
2. If 1099-B has only Box A or Box D, then there is no need to report Form 8949
3. If 1099-B has a mix of Box A and Box B (cost basis not reported to IRS) - in this case, one needs to report all transactions (for both Box A and B) on Form 8949.

If I'm correct on #3, then the only way we can report Box A transactions is by choosing investment type as "Option" and selecting "Sold" (even though it is expired). The reason we cannot choose "Expired" because Turbotax removes the gains received from Option sell when select Expired. To let the IRS know, I appended the description with (Option Expired)

Let me know if this is reasonable approach

[fanfare]

Correct me if I understand correctly from your previous response

Summarize view is Form 8949  

   Form 8949 with "I'll enter a summary " produces a summary for a category on Schedule D,  and that Form 8949 line 2.

If 1099-B has only Box A or Box D, then there is no need to report Form 8949

  If the transactions are without adjustments, Form 8949 is not required. No mailing is necessary.

If 1099-B has a mix of Box A and Box B (cost basis not reported to IRS) - in this case, one needs to report all transactions (for both Box A and B) on Form 8949.

  No.  The Exception described above still applies for Box A.

If I'm correct on #3, then the only way we can report Box A transactions is by choosing investment type as "Option" and selecting "Sold" (even though it is expired). The reason we cannot choose "Expired" because Turbotax removes the gains received from Option sell when select Expired. To let the IRS know, I appended the description with (Option Expired)

  the appended description is a good workaround for TurboTax failings in this area.

Box A transactions that are exempt but you choose to detail anyway are summarized on Schedule D line 1b.

As noted before, TurboTax may try to thwart you.

[stephaneich]

Mike, I don't think that works perfectly with short options. I imported from TDAmer and all the trades that involved the short sale of a call or put were flagged to be reviewed. The dates were the confusing part. They had the cost basis as zero and the proceeds (or lack there of) correct but the date acquired was the date the trade closed. Right or wrong, I changed the dates. Thanks for the clarifications here. I am now less confused. 🙂