How Do I Report Covered Calls ?

Selling covered calls against shares of stock you own is a common income strategy. But reporting covered call sales depends on whether they are exercised or expire worthless.

When covered calls expire worthless, report the trade with a cost basis of zero and proceeds equal to the premium received.

For example...
(1) sell 8 calls, premium of $400
(2) cost basis is zero
(3) proceeds of $400

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When covered calls are exercised against you, increase the stock sale proceeds by the premium received, and do not report the calls separately.

For example...
(1) sell 8 calls, premium of $400
(2) exercise sale of 800 shares, proceeds of $62,400
(3) adjusted proceeds of $62,400 + $400 = $62,800

Use Form 8949 to report trades involving covered calls.

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