Cost basis after assignment

When a put you wrote is assigned, your basis in the shares is the strike less the premium you received. When a call you wrote is exercised, the premium is added to what you sold the shares for. Those are the only two adjustments, and the common mistake is applying the first one twice or applying it to premium from options that merely expired.

Two sentences from IRS Publication 550 (2025), Table 4-3, Puts and Calls do all the work here. Table 4-3 of the publication, the writer's column.

The two rules, verbatim

Put exercised: "Reduce your basis in the stock you buy by the amount you received for the put."

Call exercised: "Increase your amount realized on the sale of the stock by the amount you received for the call."

And the third case, which is where people go wrong: option expires: "Report the amount you received for the put as a short-term capital gain." Not a basis adjustment. A standalone gain, and it never touches the basis of anything.

The full chain on one position

INTC from the running book, which was assigned in cycle 3 and still held at year end, having had five covered calls written against it in between.

$341 of premium collected on this position across the year, and exactly $43 of it touched the basis. The other $298 was taxed as it was earned and left the basis alone.

The mistake, and what it costs

The intuitive move is to treat every dollar of premium as lowering your cost. It feels right: you paid $22.50 and collected $3.41 of premium along the way, so surely you are in at $19.09.

Economically, that is a reasonable way to think about your break-even. For tax it is wrong, and it is wrong in a direction that costs you money.

You would pay tax on $211 you already paid tax on. The expired call premium was income when it expired; folding it into the basis as well reports it twice, and both times against you.

The mirror image, in your performance ledger

The same premium, the same $588 across the book's five assignments, causes the opposite error in the other direction when it lands in a spreadsheet.

If your ledger records the credit as income, and then measures the assigned shares against the reduced tax basis, the premium has been counted twice in your favour. On the running book that inflated the year by exactly $588: $278 on AMD, $215 on MU, $43 on INTC, $40 on KMI, $12 on WBD.

So the same figure produces two opposite mistakes depending on which document you are filling in. The rule that resolves both:

• For tax: basis is the strike less the assigned put's premium. Full stop. Nothing else adjusts it.
• For performance: measure the share move against the assignment strike, and keep the premium in its own column. The ledger page has the reconciliation.

Two numbers, two purposes, and neither is a corrected version of the other.

The call side, and the bit people miss

When a call is exercised, the premium increases the amount realized rather than reducing the basis. AMD from the running book: called away at $123, and the $227 call premium made the proceeds $12,527 rather than $12,300.

The consequence is that the call premium inherits the share's holding period. The publication: on exercise, "The gain or loss is short-term or long-term depending upon the holding period of the stock." On a stock you had held for two years, that premium is taxed at long-term rates. On the 92-day AMD position it was short term, along with everything else. The holding period page covers why 92 days is the norm here.

Three practical notes

• Your broker's 1099-B may not have it right. Publication 550 gives specific instructions for when a written call's premium is not reflected in the reported sales price, which tells you the mismatch is common enough to warrant them. Check the basis on any lot that arrived by assignment.
• Record the assignment strike and the credit, per lot, on the day. Reconstructing $22.07 from a year-old statement is painful and reconstructing it across two assignments on the same ticker is worse.
• A disallowed wash-sale loss also adds to basis. If any of this position was subject to a wash sale, that adjustment stacks on top of the premium reduction.

This page explains mechanics and quotes the IRS publication it takes them from. It is not tax advice, it does not know your bracket, your state, your filing status or your other positions, and one sentence in your own situation can change the answer. Take the worked examples to whoever prepares your return.

OptionsKing scores every candidate strike on a deterministic 0 to 100 scale, blends that score with the return on the capital the trade ties up, and shows you the highest-ranked handful. There is no minimum score. How it works covers what the ranking does and does not tell you.

Questions people actually ask

Sources

• IRS Publication 550 (2025), Table 4-3, Puts and Calls
• OCC, Characteristics and Risks of Standardized Options

Rules and thresholds above were checked against these documents on August 4, 2026. Exchange and broker rules change. Confirm anything you are about to act on with your own broker.

Keep reading

• The performance ledger, and the $588
• What happens when the shares are sold
• The other adjustment that stacks on basis

Do the math on your own trade

• Wheel strategy calculator what the position becomes after assignment.
• Covered call calculator premium, break-even, static and if-called return, annualized.
• Cash-secured put calculator credit, break-even, return on secured capital, annualized.

Every price in this article is an illustrative worked example, not a quote. Read Taxes for sellers for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.