To humans, all shares look alike. To the IRS, they don't... they have "Which tax lot am I" tattooed on their behinds. Which 1000 shares did you sell? If you sold the ones you already held, you made a profit and owe tax. If you sold the ones that you were assigned, you made a loss that you can offset against other profits. You could even sell half of each lot and the profit/loss would balance out. Except that if you held the first 1000 shares for over a year, they would be taxed at the lower rate for long term capital gains, whereas I assume the assigned shares would still be short term.Let’s say I bought 1000 shares of TSLA at 100.
The stock goes to 200. My average purchase price is $100
I have a +100% realized gain if I sell these shares and pay taxes on the $100,000 I made.
Now, let’s say I sell 10 DITM puts at $300 and get assigned 1000 shares at $300 I then have 2000 shares with an average price of $200.
Then I sell my 1000 shares on the open market.
How will the taxes be calculated on that. The premium received from the option is all taxable when the contract was assigned or when the shares are sold?
Not clear to me yet.
Anyone knows?
Thanks!
Your brokerage account has a default setting when you just say "Sell 1000 TSLA". You can change your default on a per-account basis. There are (at least) three possibilities:
1. Last in, first out; you would have sold the assigned shares at a loss.
2. First in, first out; you would have sold the original shares at a profit.
3. something like "minimize tax consequences" which honestly I don't know enough about, not all brokers offer it, and I don't think you can make it the default.
On ETrade when you place an order to sell less than the entire holding, there is a link at the bottom of the order page for "Tax lot selector", which is how you would place an order to sell 500 of each lot. HTH.
As @adiggs pointed out, the cost basis of the assigned shares would actually be less than the exact $300, but I ignore that in the above discussion. There is no taxable event on the assignment until you sell those shares, and then the tax basis takes into account that you made money selling the put but lost money on the shares themselves (assuming you sold them for less than $300).
Edit: note that once the shares are assigned to you, they look mostly like the other shares except for the tattoo. The above discussion is just as true if you had just purchased the second lot of 1000 shares for $300 on the open market.
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