Covered call selling and wash sale or potential IRS problems?

External question — Personal Finance Stack Exchange Author: Motif_90 Original post: https://money.stackexchange.com/questions/140924 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I have a stock position that went south really quick and I have been holding on for about 5 months now. My last average down was 4 months ago. My average price is $12 and the stock is currently trading at $8. If I sell an ITM covered call with a strike price of $8 and I gain say a $1 of premium then my loss will be $3 per share. I haven’t purchased any more of the underlying stock and won’t be doing so for 31 days after writing the call. Will there be any tax implications from writing this covered call? I’d really like to avoid a wash sale.

External answer — Personal Finance Stack Exchange Author: Bob Baerker Original post: https://money.stackexchange.com/a/140927 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. A wash sale occurs if you buy substantially identical replacement shares within 30 days before or 30 days after realizing a loss. If your last purchase was 4 months ago and you don't buy the stock back for 30 days after realizing a loss then there will be no wash sale. Note that this pertains to the date of the realized loss not "after writing the call". A wash sale has no tax consequences if you are completely out of the stock by the end of the year and remain out for 30 days. It only comes into play if you carry an adjusted wash sale position into the next year. Another thought for your consideration: If you're willing to forego the $1 of premium and there's a $10 call trading for 1/2 the price of an $8 call, consider a Repair Strategy. It will get you out at break even if your stock rallies to $10. You must have spread approval from your broker to do this.

External answer — Personal Finance Stack Exchange Author: D Stanley Original post: https://money.stackexchange.com/a/140928 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. If the call is exercised, that means that the price of the stock went above $8 but you sold it for $8 for a net loss of $3 per share. No wash sale rules will apply since the position was exercised in the same tax year and you're not planning to buy any more stock for >30 days. If it is not exercised, that means that the stock went below $8 and your paper losses have grown (less the $1 that you got in premium). Wash sale rules do not apply since you haven't yet realized a loss. If you do sell the position for a loss at some point you'll just need to not buy back for 30 days to avoid any potential wash sale implications.