The premium from an assigned put does not become income in the year you collected it. It adjusts the cost basis of the shares you received, and the tax consequence surfaces only when those shares are eventually sold.

That single rule has a useful side effect and a bookkeeping requirement, and both are worth understanding properly.

The rule

Sell a $100 put for $2.50 and get assigned: your basis in the 100 shares is $97.50 each, or $9,750 total. Nothing is reportable at assignment. Sell those shares later at $104 and you realise a $650 gain.

Note that this happens to match the economic basis at the moment of assignment. They diverge afterwards, and the divergence is the thing that trips people up.

Where the two bases separate

Once you start writing covered calls against those shares, the two figures go different ways.

A covered call that expires worthless is a completed option transaction and produces a short-term capital gain of its own. It does not touch the share basis for tax purposes.

Your economic basis keeps dropping because economically the premium reduces what those shares cost you. Both figures are correct; they answer different questions. Using the tax basis for performance makes your wheel look worse than it is, and using the economic basis on a tax return is simply wrong.

The other direction

When a covered call is assigned and your shares are called away, the premium is treated differently again: it is added to the sale proceeds rather than adjusting basis.

Shares with a $97.50 tax basis, called away at $105 having collected $1.80: proceeds of $106.80, gain of $9.30 per share. Whether that gain is short- or long-term depends on how long you held the shares — starting from the assignment date, not from when you sold the original put.

The deferral is genuinely useful

An assignment in late December moves the premium's tax consequence into whichever year you sell the shares. If you hold them into January, that entire premium — which would have been a current-year short-term gain had the put expired worthless — lands in the following tax year instead.

You do not have to do anything to obtain this; it is simply how the rule works. It is worth knowing about when you have a position near the money in late December, because expiring worthless and being assigned have quite different timing consequences.

The holding period starts at assignment

A detail that costs people money. Your holding period for the shares begins on the assignment date. The weeks you spent holding the short put do not count toward it.

So a wheel that assigns in March and calls away in June has held the shares for three months — short-term. Reaching long-term treatment on assigned shares requires holding them more than a year, which for most wheels means deliberately not writing calls that get exercised. See holding periods.

What your records need

For each assignment: the strike, the premium, the assignment date, the share count, and the resulting tax basis. For each subsequent call: whether it expired (its own gain) or was assigned (added to proceeds).

Brokers generally report assigned-share basis correctly on the 1099-B. Where discrepancies appear it is usually around partial assignments and wash sale adjustments — which is what reconciling the 1099-B is for.

What can go wrong

Using the strike as the tax basis. Overstates your cost and understates the eventual gain — an error in the direction that catches up with you.

Applying covered-call premium to the tax basis. An expired call is its own gain, not a basis adjustment.

Dating the holding period from the put sale. It starts at assignment.

Keeping only one basis figure. One will be wrong for whichever purpose you use it for second.