Tax questions related to covered call options?

Question

1) I was assigned on covered call options. I understand that I should add the premium received for the option to the proceeds from the associated stock sale and report that on Schedule D as part of the sale price of the stock. Is that all that goes on Schedule D? Do I report the option itself anywhere?

2) Separately, I wrote covered call options that had less than 30 days until expiration and identified them as a straddle with the related stock. I later bought back the calls at a loss. Does this count as an "identified straddle" where I just increase the basis in the stock by the amount of the loss or does that fact that the expiration date was less than 30 days away mean that it is subject to the traditional loss deferral rules? Also, what effect is there on my holding period for the stock - was it terminated when I sold the options or just suspended?

Answer 1

When assigned you do not need to report the option anywhere. as long as the stock sale price includes the premium.

When you wrote covered call options that had less than 30 days until expiration you created a straddle. If

1. you clearly identified the straddle on your records before the close of the day on which you acquired it and
2. it was not part of a larger straddle

it is an identified straddle.

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If you identified in your records in a timely manner, that is the way I read the rule. However, I should warn you that this rule has changed since the last time I had to deal with it, so you are getting my first interpretation of the new language.

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No. The fact that the expiration date was less than 30 days away means that it was a straddle instead of a qualified covered call.

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Unless you had already owned the stock for over a year when you sold the sold the covered calls, it was terminated and started again at the time you closed the calls.

The holding period is suspended when an in-the-money qualified covered call is sold, but since this was a straddle instead of a qualified covered call it does not matter what the strike price was.

Fair warning: I am not a tax professional. I had a very good understanding of the straddle rules before this latest change, but I have not researched this change thoroughly.

If I were you, I would repeat this question on the message board at www.fairmark.com which is moderated by a tax lawyer. I would specifically reference page 59 of IRS Publication 550 under the heading on "Identified Straddles."

Answer 2

1. You're absolutely correct. Add the premium to the sales price and record on Schedule D. Follow direction on Sch D and unless you have losses that qualify for a carryover, enter your gain on Line 13 of your Form 1040.
2. I believe you have a loss here and the loss deferral rules apply. Your holding period probably doesn't matter and it will be considered short term any way you look at it. I strongly encourage you to call IRS on that one especially if you don't use a CPA and review FORM 6781 before you call them.
Best of luck.

Answer 3

Sorry buddy, yet in case you claimed the credit on your go back and moved out in 2009, the entire $7,500 became due with your 2009 go back. you're already a year late as we are doing tax year 2010 now. you in effortless words get the $500 in line with year repayment deal in case you stay interior the residing house as your crucial position of abode for 3 finished years from the final date on the acquisition. promoting to an unrelated individual does no longer comprise abandoning your fairness to an ex female friend co-client. regardless of in case you tried to argue it that way, you should decrease your foundation by the quantity of the credit that you received with the intention to get rid of the payback requirement. because there is in simple terms too a lot room for fraud, the IRS can not allow that. in case you could't pay in finished, you will get on a cost plan to sparkling some thing of the debt. consequences and interest will prepare on the unpaid stability until eventually it really is paid in finished. in case you get any tax refunds interior the intervening time, they're going to be utilized adverse to the debt even once you've a cost plan and are modern-day on your funds.