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How are cash-secured puts taxed? The basics for the US and Canada

The premium from a cash-secured put is usually taxed when the trade ends, not when you collect it. If you're assigned, the premium lowers the cost of the shares instead. This is general information, not tax advice; check with a tax professional or your broker.

Options guide · 9-minute read · Updated 2026-10-26

The short answer

In the US, the premium from a cash-secured put is generally counted when the put ends, in one of three ways:

1. It expires: the premium is generally a short-term capital gain, in the year it expires.
2. You buy it back: the gain or loss is the premium minus what you paid to close. Generally short-term.
3. You're assigned: the premium isn't taxed on its own. It lowers the cost basis of the shares you bought. The tax comes later, when you sell those shares.

Canada handles the timing a little differently. We cover that below.

One put, three endings

A made-up stock, XYZ, trades at $50. You sell one $45 put for $1.00 and collect $100 (an illustration, not a trade idea).

That last row matters most for the wheel strategy. Assignment folds the premium into the shares.

What happens after assignment

After assignment, you own 100 shares. Your cost basis is $45 − $1.00 = $44 a share, or $4,400 in total.

The holding period of the shares generally starts at assignment, not when you sold the put. Selling within a year usually means a short-term result.

Now say XYZ falls, and you sell the shares at $40:

Notice: there's no separate $100 gain from the put. It's already inside the $400 loss. Reporting the $100 as a gain and using a $4,500 cost would count it twice.

If you then sell covered calls on those shares, those premiums follow their own rules. See the wheel strategy's cost basis guide for how the numbers stack.

Things that trip people up in the US

• The year matters. A put sold in December that expires in January is generally reported in January's year.
• Your broker's form may not match your notes. The 1099-B usually adjusts the share cost basis for an assigned put. Check that it did, and don't add the premium again.
• Wash sales. Selling shares at a loss and then selling a put on the same stock soon after can raise wash-sale questions. The rules are not simple. Ask a tax professional before you do it.
• Short-term rates. Most put results are short-term, which is generally taxed at ordinary income rates rather than the lower long-term rates.

Retirement accounts (US). Inside an IRA or Roth IRA, trades generally aren't taxed one by one. What counts is the account's own rules on contributions and withdrawals.

Many brokers allow cash-secured puts in an IRA at a basic options approval level. Some don't. Naked puts on margin are generally not allowed there. Check your broker's current rules, and see selling puts on margin for why that difference matters.

Canada, the basics

For most individual investors in Canada, option premiums are generally treated as capital gains. The timing works differently from the US:

• When you sell (write) the put, the premium is generally reported as a capital gain in the year you sold it.
• If the put is later assigned, that earlier gain is generally reversed, and the premium reduces the adjusted cost base (ACB) of the shares instead.
• If you buy the put back, the cost to close is generally a capital loss in the year you close.

Someone who trades very often may be treated as running a business, which changes the rules. That's a question for a professional.

TFSA and RRSP: gains inside these accounts generally aren't taxed year by year. Covered calls are widely allowed in them. Cash-secured puts depend on the broker, and options permissions differ by broker (Questrade, IBKR, Wealthsimple and others each set their own). Very frequent trading inside a TFSA has drawn tax questions before, so ask a professional if that's your plan.

What to keep in your records

For every put, write down:

1. The date you sold it, the strike, the expiry and the premium.
2. How it ended: expired, bought back (and for how much), or assigned.
3. If assigned: the share cost basis after the premium.
4. Every fee and commission. They usually adjust your gain or loss.

A simple journal like this makes tax time a check, not a puzzle. Our first cash-secured put walkthrough includes the fields to note on day one.

Questions