Reply To: Can I Determine Cost Basis differently than my discount brokerage

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#8022
ElroyTax
Participant

I agree there is normally a system which the brokerage follows if I don’t give instructions on which lot to sell. It is FIFO. However, in this case the broker views the sold shares as uncovered, and as a result will not report a cost basis to the IRS. So I’m curious if I can report my same day purchase of the shares (which is real, not fabricated) as the cost basis? For even more detail, here is a summary of exactly what has happened. Lets say I buy 1,000 shares of ABC for $4 each in 2010. What I actually did this year (I didn’t mention it earlier, wasn’t sure it was key) was sell 5 covered $30 March calls on ABC on March 10th 2020. On March expiration (say, March 20th, 2020) ABD is $40, so I know the 5 covered calls will get executed. So the morning of March 20th 2020 expiration day, I bought 500 shares of ABD for $40, giving me a total of 1,500 that day (1,000 from 2010, and 500 from today). In the afternoon of March expiration day I am forced by the short call position to sell 500 shares of ABC for $30 each. I end the day with the same 1,000 shares I have had for years and years, but I need to determine the affect on trading and taxes. Can I report my cost basis on that short call position as $40 (what I paid that morning) and my sales amount as $30 (the call strike) + the premium I received for selling the covered call? I would prefer to do that (delivering me a capital loss) rather than report the cost basis of $4 each for the ABC shares held since 2010 (giving me a big capital gain)? Since the broker has not reported any basis to the IRS< am I allowed to report a reasonable cost basis (being basically last in first out)? Thanks for any advice. PS – I’m in Hawaii 🙂

  • This reply was modified 11 months, 1 week ago by ElroyTax.