I am working on a 1099-B for trading option credit spreads, I have a few that are showing they need attention, do I show zero for the cost since they expired worthless?

[nh8493]

It appears all the items from my import are the spreads that expired worthless, the same dates came in for acquired and sold, which was the expiration date and the options expired worthless so do I just need to show a zero for the cost since the options expired worthless?

[fanfare · Accepted solution]

Yes. Your cost is zero and your gain is  the premium you received, less commission.
It is considered a Short Sale and (with some rare exceptions) a short sale  profit is always a short term capital gain.

[fanfare]

With a spread one half is long and the other short.  [  ]

[nh8493]

What do you mean, can you explain? When would you close a deep out of the money long side of a spread at expiration?

[fanfare]

Sorry I guess I spoke with foot in mouth. I'll edit my comment.
The long side if expired, would not have an initial cost of zero and the answer would not apply to those.

[4cstripper]

I'm confused. Perhaps I misunderstood the question. How can my cost be zero on an expired vertical spread. The difference to figure my profit would be what I received for selling an option minus what I paid for the option I bought. You are saying your gain is the premium received which I don't understand.

[fanfare]

"The difference to figure my profit would be what I received for selling an option minus what I paid for the option I bought"

@4cstripper 

This is the case if you report your expired credit spread on one line as one transaction.

If you imported a consolidated 1099-B from brokerage that's probably not how it is shown.

[4cstripper]

Thanks, this is the first year I have done these bull put spreads and I had no idea how they would be reporting the expired transactions to me on the tax forms. I have quite a few of them and was just trying to get a sense of what I'd be doing with them at tax time.

[fanfare]

@4cstripper 

Your option trades are covered transactions - Box A or Box D.

The simplest way is to use aggregation which TurboTax calls summary and mail-in-option.

Detail Reporting Exception: if you aggregate Category A or Category D, Form 8949 is not needed for transactions without adjustments. No mailing is necessary. No attachment is necessary.

Note: if you are active in the same security you could end up with wash sales.

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If you have wash sales, it gets more complicated since those adjusted transactions have to be itemized on Form 8949 and the summary totals adjusted accordingly.

Enter the wash sales on Form 8949, then use the subtotal results on the bottom of that form (Line 2) to know how much to subtract which gives you the Schedule D line 1a totals. Be sure to NOT check the adjustments box in the summary window.
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Alternatively, if entry of Wash Sales is too tedious,
summarize and check the box for adjustments and enter the disallowed amount.
This summary will go on Schedule D Line 1b.
You will be making the mail-in election.

[4cstripper]

Thanks for the info.