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**The information below has not been verified for the 2020 tax year as the IRS Pub. 550 has not yet been released by the IRS.**

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), on 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 Proceeds From Broker and Barter Exchange Transactions 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 in the upper left-hand corner, then click Federal.
  2. Click Investment Income in the Federal Quick Q&A Topics menu to expand, click Gain or loss on the sale of investments to expand, then click Capital gain or loss (Form 1099-B).
  3. Click + Add Form 1099-B to create a new copy of the form or click Edit to review a form already created.
  4. Click Quick Entry to scroll down to answer all applicable questions or click Step-by-Step Guidance to proceed with the program interview questions.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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