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I am consideringn writing covered calls and was wondering how the brokerage will report the proceeds to the IRS. Are they considered interest, a dividend, capital gain distribution or what? I have looked through several books that discuss covered calls, but none mentioned how they should be handled on your tax form.

(P.S. Thanks Roy & Kaye for answering my wash-sale question.)
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Assuming your options expire worthless - you take the money and keep the stock - you will have short term capital gain(ordinary income) reported to you. Put it on Sch D, pay the tax and be happy you made a good call. By the way, your holding period is suspended during the time in which the covered call is in effect, so if you're near the magic 12 mos, watch it!
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"Assuming your options expire worthless - you take the money and keep the stock - you will have short term capital gain(ordinary income) reported to you. Put it on Sch D..."

Does the same situation hold true if your underlying securities get called? I guess what I am asking is, does the IRS consider selling covered calls as it does any other security and that I am not required to adjust my cost basis for the underlying security?

Thanks.
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[[I am consideringn writing covered calls and was wondering how the brokerage will report the
proceeds to the IRS. Are they considered interest, a dividend, capital gain distribution or what? I
have looked through several books that discuss covered calls, but none mentioned how they
should be handled on your tax form.]]

Since writing covered calls are not part of the Foolish Filosophy, I try to stay away from these types of questions. Perhaps KAT will care to respond. Or DowDanny has also provided information on this in the past. If all else fails, you can check out IRS Publication 550 at the IRS web site. Or, you can even call your broker and ask the same question. Since you broker will be making a tidy sum on your trading, the least they can do is to provide you with that information.

TMF Taxes
Roy
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