Cost basis is $0 for selling covered call and buying to close?

Forum|Forum|4 years ago
March 20, 2022
1 reply
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My brokerage is reporting my cost basis is $0 for covered call options I sold and then soon afterward bought to close. Is my cost basis $0.00 as the brokerage reported? Or do I need to correct that amount to account for the cost of buying to close the option?

JohnB5677

Dealing with covered calls can be a challenge, but we'll help you get through it.

The first issue is that we don't allow a purchase date after the sale date.

I suggest you click the target button for Something other than a date

The drop-down box will say "Blank".

Click the down arrow and select "Various"

Enter your information down to Box 1e - Cost or other basis = Leave blank

Check the box below The cost basis is incorrect or missing on my 1099‑B = Continue

Let us know if any of these situations apply to this sale = None of these apply

We noticed there's an issue with your cost basis...Let us know if you'd like to make any changes

Check I know my cost basis and need to make an adjustment = Enter the new cost basis

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TsenYeongAuthor

Thanks for the reply, John. So you're saying that it shouldn't just be $0.00?

Your steps below look fine.

I'm wondering now what my cost basis should be.

Should it be the amount that I bought back the contract for? Or should it be the amount I bought the contract for minus the gains/losses that I inccurred? Should I factor in/add the cost (cost basis) of the underlying/covered shares?

EDIT: I figured out that if I changed the cost basis then I would end up underpaying for my taxes. I think my brokerage is reporting this correctly since they are reporting "Proceeds" from the result of the contract selling and contract buying to close.