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A "put option" is the right to sell to the writer, at any time before a specified future date, a stated number of shares at a specified price. Conversely, a “call option” is the right to buy from the writer of the option, at any time before a specified future date, a stated number of shares of stock at a specified price.

Per IRS Publication 550 Investment Income and Expenses (Including Capital Gains and Losses), page 58:

Writers of puts and calls. If you write (grant) a put or a call, do not include the amount you receive for writing it in your income at the time of receipt. Carry it in a deferred account until:

  • Your obligation expires,
  • You buy, in the case of a put, or sell, in the case of a call, the underlying stock when the option is exercised, or
  • You engage in a closing transaction.

If your obligation expires, the amount you received for writing the call or put is short-term capital gain. 

If a put you write is exercised and you buy the underlying stock, decrease your basis in the stock by the amount you received for the put. Your holding period for the stock begins on the date you buy it, not on the date you wrote the put. 

If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock.

If you enter into a closing transaction by paying an amount equal to the value of the put or call at the time of the payment, the difference between the amount you pay and the amount you receive for the put or call is a short-term capital gain or loss.

Puts and Calls (as they relate to options on securities) are entered through Form 1099-B in the TaxAct program to report the gain or loss:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal.
  2. Click Investment Income to expand the category and then click Gain or loss on sale of investments
  3. Click Capital gain or loss (Form 1099-B)
  4. Click +Add Form 1099-B to create a new copy of the form or click Review to review a form already created 
  5. The program will proceed with the interview questions for you to enter or review the appropriate information

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