Stock Covered Call Reporting

Forum|Forum|6 years ago
February 4, 2020
2 replies
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I own xyz stock. I sold a xyz covered call. The call expired worthless. I have a gain on the sale of the covered call. I still have the xyz stock. I should be able to adjust the cost basis of xyz and take the gain when I sell the stock. The broker however reported the option gain as a short term reported to the irs, form 8949 with box A checked. If I report the gain I will pay tax as a short term gain, however, if I wait until I sell the stock it would be a long-term gain. How do I report this short-term gain but postpone the tax payment until I sell the stock?

Not A Product Question

KathrynG3

Level 14

No. Typically, the short term gain would be reported in the year the event occurred. I am attaching some research that may be of interest and provide more details for your situation. The Publication is from 2018, but it is the newest available as of this writing.

IRS Publication 550 is useful for determining the reporting of the expired covered call. The material on qualified covered call options and optioned stock begin at the very end of page 59.

page 57: How to report. Report on Form 8949 gain or loss from the closing or expiration of an option that is not a section 1256 contract but is a capital asset in your hands. If an option you purchased expired, enter the expiration date in column (c) and enter “Expired” in column (d). If an option that was granted (written) expired, enter the expiration date in column (b) and enter “Expired” in column (e). Fill in the other columns as appropriate. If a call option you sold was exercised and the option premium you received was not reflected in the sales price shown on the Form 1099-B you received, enter the premium as a positive number in column (g) of Form 8949 and enter “E” in column (f).

From page 28, a "Transactions of Interest" by the IRS:

Certain transactions denominated as an option, notional principal contract, forward contract, or other derivative contract (“basket contracts”) to receive a return based on the performance of a basket of referenced assets in an attempt to deliver income recognition and/or convert short-term capital gain and ordinary income to long-term capital gain as described in Notice 2015-74, 2015-46 I.R.B. 663, available at Internal Revenue Bulletin: 2015-46