Are you looking at the Proceeds from Broker and Barter Exchange Transactions section of your Consolidated 1099 and wondering why you see a 0.00 cost basis for all of your short options positions? Well, it's not an error but rather a new reporting methodology.
As a result of this new reporting methodology for short equity/ETF options, your total proceeds and total cost basis listed on your Consolidated 1099 may not match your Tax Worksheets (CSV files), and when importing your tax data into tax software such as TurboTax, H&R Block, or TaxAct. Despite the difference, as long as your overall profit/loss is consistent, then the total proceeds listed, generally, will not affect your filing.
New methodology starting in the 2020 Tax Year
Mainly affects short equity/ETF options positions
Starting the 2020 tax year, our clearing firm changed the methodology of reporting short options positions, per regulatory rule (cited below). This new methodology includes any naked short options sold individually or any short option that was part of an options spread. As a result of the new methodology, a loss on an equity options contract can result in a negative proceeds figure.
Below is an example of a short X 4/17/20 7-strike call opened on March 31, 2020, for a $0.30 credit and then closed on April 16, 2020, for a $0.03 debit. The overall net profit from this trade after commissions and fees was $25.70, as illustrated below.
The overall net gain or loss from any short options positions will reflect a positive or negative number in the proceeds, net the credit received, and the commissions and fees paid (red box). The overall net profit or loss of any short options position will reflect in the Gain or Loss (-) column (green box). Using the same example from above, you will see that the cost basis lists as 0.00, and the overall gain matches the example above.
To read more about the change and view an example of the rule (§1.6045-1 Returns of information of brokers and barter exchanges), please click here (Please note: You are leaving tastyworks.com and heading to ecfr.gov). Search for (ii) D is required to report to view an example of this new methodology within the rules.