I got my tax forms from my broker recently and I'm curious about how this accounting works and if there's a way to take better advantage of the situation.
I had sold a short-term $9 call against some long-term CLF shares I'd been holding. When the stock price was above $9 in December, I decided to let half the shares get "called" away for $9. I had sold the calls for $0.19 per contract. In my 1099-B I see that they included my last call proceeds into the Reported Proceeds column, so instead of sell price of $900 per lot it's $919 per lot. There's a note that says "Proceeds adjusted for option premium". This is fine with me because that call will be taxed as long-term gains instead of short-term. Is this normally how that happens?
Yes, it is, see
https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010619, section "Put and Calls.
However, please note that if CLF shares were still short-term, when you sold those calls that got exercised, then your holding period is short-term.
Now, this isn't the first call I've sold against these shares. I'm guessing I can't tax the other calls as long-term gains? What about shares that I acquired as a result of selling a put?
See link above:
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.
My final question is just about selecting the "basis". I bought some CLF at $11 and some at $7, both long-term. Since I bought the $11 first the form is calculating the basis off of that. In my tax return is it ok to instead say that I sold the $7 shares and take a LT capital gain instead of the loss?
No, you have to use FIFO (first-in, first-out), unless you specified (and your broker confirmed in writing!) a different method at the time of the closing transaction. That's possible (at least with some brokers) for a regular stock sale, I'm not sure, if this is possible for an option exercise. Anyway in your case the horse has left the barn, and the stocks that were called away are the stocks that you purchased first.
I always thought short-term transactions counted in their own section, and long-term in theirs, but this seems to be a mix. Appreciate your advice!
The do always count in their own section, but in those cases where it is a mix, you have to split the original lot (allocating the cost basis proportionally between the two).
Example: You buy 100 stocks of ABC for $1000, then two days later another 50 for $550. Then a month later you sell 20 shares and two years later you sell another 100, leaving 30 remaining.
So you start with (assuming an initial purchase date of 2/1/17):
Lot 1: 2/1/17 ABC 100 shares Cost-Basis: $1000
Lot 2: 2/3/17 ABC 50 shares Cost-Basis: $ 550
Then after the first sale of 20 shares:
Lot 1a: 2/1/17 ABC 20 shares (sold short-term), Cost-Basis $200
Lot 1b: 2/1/17 ABC 80 shares, Cost-Basis $800
Lot 2: 2/3/17 ABC 50 shares, Cost-Basis $550
After the sale of the 100 shares:
Lot 1a: 2/1/17 ABC 20 shares (sold short-term), Cost-Basis $200
Lot 1b: 2/1/17 ABC 80 shares (sold long-term), Cost Basis $800
Lot 2a: 2/3/17 ABC 20 shares (sold long-term), Cost Basis $220
Lot 2b: 2/3/17 ABC 30 shares, Cost Basis #330
So that's probably more than you ever cared to know. ;)
